Banco BBVA Argentina S.A. ADS

Good morning everyone and welcome to BBVA's Argentina Second Quarter 25 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 Mauricio Arroyo, CFO, who will be available for the Q&A section. This presentation and the second quarter 25 earnings release are available on BBVA's Investor Relations website at 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 provision found in Section 27 of the Securities Act of 1923 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ maturely from those expressed in such forward-looking statements. Additional information concerning these factors are contained in the BBVA Argentina Annual Report on Form 20-F for the fiscal year of 2024, filled with the U.S. Securities and Exchange Commission. During the campus presentation, all microphones will be disabled. At this time, we're going to open for the Q&A section. And if you have a question, please press the raise hand button. You 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'll now turn the call over to Mrs. Belen Forcade. Please go ahead.

Good morning and thank you all for joining us today. The macroeconomic normalization process has continued in recent months. The sustained fiscal balance along with a tight monetary policy and the gradual relaxation of foreign exchange restrictions have been key factors in anchoring expectations and solidifying a significant disinflationary trend since 2024, which has continued during the first half of 2025. In this context of stabilization, despite some recent signs of a slowdown in the pace of economic recovery, GDP growth is projected to be 5.5% year over year in 2025, according to VDA research. This not only reverses the 1.7% drop in 2024, but also surpasses previous highs reached in the past years. As a result of these improvements, our base case scenario contemplates that the disinflationary convergence will strengthen, with an year-over-year inflation rate that will be close to 28% by the end of 2025. Within the framework of a new agreement with the International Monetary Fund during the second quarter of the year on April 14th, 2025, the lifting of a large part of the remaining exchange controls was announced, along with the implementation of a wide band floating exchange rate scheme. This has positively impacted our results with increased foreign currency trading activity and gains from gold and foreign currency valuation. These regulatory changes will also boost cross-border credit flows and investments in the country. During the first half of 2025, BB Argentina accelerated its growth in the credit segment, consistently outperforming the market. The bank's market share of total private loans rose 107 BPs from 10.54% in June of 2024 to 11.61% in June of 2025. As of March of 2025, BB Argentina was positioned third in the ranking of local privately owned banks in terms of consolidated private loans. As per central bank information, our peso loan portfolio expanded by 43% year-to-date, a pace faster than the system 39% and the six-month accumulated inflation level, which reached 15.1% in June of 2025. As for total private deposits, as per central bank information, the system grew 17% in the first six months of 2025, while the bank grew 32%, surpassing the level of inflation in both cases. BEB Argentina's consolidated market share of total private deposits was 9.64%, 215 BPs higher than the 7.5% of the previous year. According to the latest quarterly data available from the central bank, as of March 2025, VEB Argentina remained in the third place in the ranking of local privately owned banks in terms of consolidated private sector deposits. Moving to slide two and three, I will now comment on the bank's second quarter 2025 financial results. PVV Argentina's inflation-adjusted net income in the second quarter of 2025 was 59.6 billion pesos, decreasing 31.1% quarter over quarter. This implied a quarterly ROE of 7.6% and a quarterly ROE of 1.2%. We are leveraged by active pricing management, careful portfolio management, and strict cost control, which has allowed us to navigate a context of higher provisions and non-performing loans while driving activity growth. The decrease in quarterly operating results was mainly explained by lower operating income. Lower income was mainly due to, one, a drop in the line of net income from write-down of assets at amortized cost, through OCI, explained by the voluntary exchange of bonds promoted by the government in January 2025, which reflected a positive result from the write-down of securities. And two, a deterioration in loan loss allowances. These were positively offset by better income in foreign exchange and gold gains, explained by an increase in activity after the partial lift of FX controls on April 14, 2025. Net income from the net monetary position was 30% lower quarter over quarter, thanks to a lower quarterly inflation of 6% versus 8.6% in the first quarter of 2025. Turning into a P&L lines in slide three, net interest income was 591.8 billion pesos, increasing 3.1% quarter over quarter. In the second quarter of 2025, interest income increased more than interest expenses in monetary terms. The former increased due to an improvement in income from loans and from CER UVA adjustments. Expenses increased mainly due to higher deposit costs, in particular due to time deposits. Interests from time deposits explained 73.4% of interest expenses versus 74.4% the previous quarter. Net fee income as of the second quarter of 2025 totaled 94.1 billion pesos, decreasing 11.1% quarter over quarter. Fee income totaled 176.5 billion pesos, decreasing 7.8% quarter over quarter. Decreasing income is mainly explained by credit card fees, considering a revision of provisions linked to the MISA's BBVA loyalty program in the first quarter of 2025. This was partially impacted by the extraordinary results reported in the first quarter of 2025 in a context of the program's sustained state and the recalculation of provisions. It is important to note that the bank is actively committed to generating efficiencies within the fees The growth of fees linked to liabilities is particularly noteworthy, especially due to improvements in pricing of account maintenance and bundles. On the side of expenses, this totaled 82.5 billion pesos, decreasing 3.8% quarter over quarter. This is mainly explained by lower expenses related to payroll promotions, followed by lower fees expenses for new channels. In the second quarter of 2025, loan loss allowances increased 42.3%, explained by the real growth of the loan book in the quarter, which implied higher provisioning, as well as the publicly known deterioration of MPLs, both for BBVA and for the system, which I will comment on later. During the second quarter of 2025, total operating expenses were 483.1 billion pesos, decreasing 7.5% quarter over quarter, of which 29% were personal benefit costs. Personal benefits increased by 10.4% quarter over quarter, but fell by 7.3% year over year. While wages kept pace with inflation, there was an increase in the payroll, as well as social security withholdings and collections, and other short-term personal benefits. Administrative expenses dropped 4.8% quarter over quarter. The quarterly savings are mainly due to proactive efficiency measures in one, armored transportation services, two, outsourced administrative expenses, three, advertising, and four, commercial reports. Additionally, the decrease is also due to the lower provisions made in the first quarter of the year, primarily related to elimination of the Pais tax. The quarterly efficiency ratio as of the second quarter of 2025 was 56.5%, stable versus the 56.3% reported in the first quarter of 2025. Moving on to slide four, private sector loans as of the second quarter of 2025 totaled 11.3 trillion pesos, increasing 15.7% quarter over quarter. Loans to the private sector in pesos increased 13.9% in the second quarter of 2025. For the quarter, real growth occurred across all lines, specifically with one, a 34.6% increase in overdrafts, followed by two, a 26.9% increase in other loans, three, an 8.4% rise in credit cards, and four, an 11.6% increase in consumer loans. In all cases, the increase is driven by the genuine portfolio growth leveraged by the relative stability of market interest rates during the second quarter and increased commercial efforts. For other loans in particular, the significant progress is linked to the floor plan business, which is supporting the higher activity in the automotive sector. Loans to the private sector denominated in foreign currency increased 23.6% quarter over quarter. Quarterly increase is mainly explained by a 23.5% growth in financing and pre-financing of exports. These loans grew in a context where foreign exchange controls were lifted and expectations of exchange rate stability became stronger, which promoted activity in foreign currency. During the quarter, the commercial portfolio grew 17.7% and the retail portfolio increased 13.1%. The commercial portfolio represents 58.1% of the total portfolio from 54.1% a year ago. BBA Argentina's consolidated market share of private sector loans reached 11.61% as of the second quarter of 2025, improving from 10.54% a year ago. Regarding asset quality, BBA Argentina's non-performing loan ratio on private loans reached 2.28% in June 2025, a figure that remains below the system average. to 0.55% as of May 2025, the latest available data. This was due to an increase in the non-performing retail portfolio, reflecting a deterioration in non-performing credit card and consumer loans, which aligns with the overall systemic trend. Commercial non-performing loans, however, show very good performance, decreasing from 0.14% to 0.10%. While some deterioration has been observed in a scenario of significant credit expansion, primarily concentrated in the retail segment, this increase starts from historically low levels. The current non-performing loan levels continue to be below the average of the local financial system over the last 20 years. VEBA is distinguished by consistently having non-performing loan ratios below the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. As we can see on slide five, as of the second quarter of 2025, total gross loans and other financing over deposit ratio was 88%, above the 85% recorded in the first quarter of 2025, and above the 78% in the fourth quarter of 2024. Participation of total loans over assets is 58% versus 56% in the first quarter of 2025 and 51% in the fourth quarter of 2024, evidencing a lower exposure to the public sector in line with the real growth of credit demand. The transition of the business from securities to loans in the past years, denoted in the loans over assets ratio and the loans to deposits ratio, has had a toll on NIMS, which reached up to 50% in 2023 and is now 19.1%. If we consider the result of the net monetary position in the calculation of NIMS, We can see that the adjusted NEM has remained relatively stable since the end of 2024 and even increased in the second quarter of 2025, demonstrating the stabilization and improvement of spreads. On the funding side, as of the second quarter of 2025, total deposits reached 13 trillion pesos, increasing 12% quarter over quarter. The bank's consolidated market share of private deposits as of the second quarter of 2025 reached 9.64% compared to the 7.5% a year ago. Private non-financial sector deposits in pesos totaled 8.7 trillion pesos, increasing 11% quarter over quarter. The quarterly change is explained by a 34.8% increase in time deposits, which was negatively offset by a 64.1% drop in investment accounts. Private non-financial sector deposits in foreign currency expressed in pesos increased by 14.1% quarter over quarter and 94.7% year over year. This is mainly due to an 11.1% increase in savings accounts, followed by a 55.1% increase in time deposits. Foreign currency deposits expressed in US dollars increased by 8.8%. BV Argentina continues to show strong solvency indicators on the second quarter of 2025. Capital ratio reached 18.4%. The excess capital integration over the regulatory requirement was 1.4 trillion pesos, or 123.9%. The quarter-over-quarter drop was driven by a rise in activity, which increased the risk-weighted assets requirement. Additionally, a decline in equity is partly explained by a dividend distribution announced at the General Shareholders' Meeting in April. The second quarter of 2025 total public sector exposure, excluding central bank, totaled 3 trillion pesos, increasing 3.1% quarter over quarter. The quarterly increase is due to a specific position in LEFI at the end of the quarter, an instrument that was later removed from the market by the Treasury in July. Exposure to the public sector, excluding central bank exposure, represents 15.8% of total assets, below the 17.1% in the first quarter of 2025, in line with the real loan growth demand. In the quarter, liquid assets were 6.4 trillion pesos, increasing 14.7% quarter over quarter and representing 48.7% of total deposits versus 47.6% the previous quarter. Liquidity in pesos increased from 43.8% in the first quarter of 2025 to 45.4% in the second quarter of 2025, while liquidity in U.S. dollars remained stable around 55.5%. In line with our commitment to generating value for our shareholders, the bank has announced the distribution of cash or in-kind dividends corresponding to the 2024 fiscal year for the sum of 89.4 billion pesos expressed in homogeneous currency as of December 31st, 2024. This amount will be adjusted by the consumer price index on the date of each of the 10 payments to be made with the first two payments already successfully completed. Moving on to other business dynamics, as you can see on slide seven of our webcast presentation, our service offering has evolved in such a way that by the end of June, 2025, new customer acquisition through digital channels reached 84.5% versus 83.5% a year ago. Retail digital sales measured in units reached 95% in the second quarter of 2025 and represent 90% of the bank's total sales measured in monetary value. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

Thank you. We're now going to start the Q&A session. If you wish to ask a question, please use the raise hand button. Wait while we pull four questions. Our first question comes from Brian Flores from Cici. Please, Mr. Flores, your microphone's open.