Banco BBVA Argentina - Earnings Call - Q2 2025

Transcript

Speaker 6

Good morning everyone and welcome to BBVA Argentina's second quarter 2025 results conference call today. With us are Mr. Diego Cesarini, Head of ALM and Investor Relations, Ms. Belén Fourcade, Investor Relations Manager, and Mrs. Carmen Morillo Arroyo, CFO, who will be available for the Q&A section. This presentation and the second quarter 2025 earnings release are available on BBVA Argentina'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 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 such 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 2024 filed with the U.S. Securities and Exchange Commission. During the conference 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 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 Ms. Belén Fourcade. Please go ahead.

Speaker 7

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 a 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 14, 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 system. 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, BBVA 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 2024 to 11.61% in June 2025. As of March 2025, BBVA 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 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. BBVA 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, BBVA Argentina remained in third place in the ranking of local privately owned banks in terms of consolidated private sector deposits, moving to slide 2 and 3. I will now comment on the bank's second quarter 2025 financial results.

BBVA 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 ROA of 1.2%. We are leveraged by active pricing management, careful portfolio management, and strict cost control, which has allowed us to navigate the 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 P&L lines in slide 3, 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. Interest from time deposits explained 73.4% of interest expenses versus 74.4% the previous quarter.

Net 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. Decrease in income is mainly explained by credit card fees. Considering a revision of provisions linked to the Mishaafea 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 framework. 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 ARS 82.5 billion, 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 NPLs both for BBVA Argentina and for the system, which I will comment on later. During the second quarter of 2025, total operating expenses were ARS 483.1 billion, 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 1 armored transportation services, 2 outsourced administrative expenses, 3 advertising, and 4 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 pays 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 4, private sector loans as of the second quarter of 2025 totaled ARS 11.3 trillion, increasing 15.7% while 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 1 a 34.6% increase in overdrafts followed by 2 a 26.9% increase in other loans, 3 an 8.4% rise in credit cards, and 4 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 a 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. Quarter 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, up from 54.1% a year ago. BBVA 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, BBVA Argentina's non-performing loan ratio on private loans reached 2.28% in June 2025, a figure that remains below the system average of 2.55% 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. BBVA 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 5, 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 deposit 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 NIM 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 ARS 13 trillion, 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 7.5% a year ago. Private non-financial sector deposits in pesos totaled ARS 8.7 trillion, 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 U.S. dollars increased by 8 BEV. Argentina continues to show strong solvency indicators. In the second quarter of 2025, capital ratio reached 18.4%.

The excess capital integration over the regulatory requirement was ARS 1.4 trillion 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 ARS 3 trillion, increasing 3.1% quarter over quarter. The quarterly increase is due to a specific position in LEFIs 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 ARS 6.4 trillion, 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%. 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, expressing homogeneous currency as of December 31, 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 7 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.

Speaker 6

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

Hi Tim, thank you for the opportunity to ask questions. I have two questions. The first one is if you have any updates on guidance, I think it would be very important, and then wanted to ask you a bit on the sustainability of your increasing market share. I think you're proving very healthy risk appetite. You kept the pace very, very strong. I just wanted to check with you how sustainable this pace of growth is. Also, if you're going to be focusing a bit more on any particular segment, I think that would be very interesting. Thank you.

Speaker 1

Hi Brian, good morning. This is Carmen Morillo Arroyo. Thank you for your questions. Related to, in fact, both of them, I would like to start saying that we see a scenario a bit more complicated in terms of NPLs, as you all know. We believe the levels are, so we are comfortable in these levels, and we remain with our strategy of credit growth. In that sense, we believe this year is going to be, so we maintain our guidance around 50% growth for the bank in real terms. We believe it's a possible scenario. We will have to see what happens in the following months pre or elections, but we already think that it's feasible. In terms of other factors in guidance related to profitability, ROEs will also be around low double digits. In terms of liquidity, we are also comfortable with the growth of our deposits.

We also maintain our guidance there around this 30% to 35% growth in deposits. Time deposits are behaving really, really good, also in retail, where we didn't see so much growth in the first quarter, but now we are focusing on this growth. It's a good lever in our P&L. In terms of capital ratio, we are also comfortable. We believe to be finishing the year around 17%, from this 18.4% we are finishing the semester. This is due to the dividend payment and also the growth of our credit activity. We believe to end the year around these levels. I hope this answers your questions.

That is perfect, Carmen, thank you for the answer. If I understand correctly, you will slow down a bit in terms of growth, but perhaps you're going to be, I mean the whole system is going to be decelerating. Is my understanding correct in terms of you will continue to gain market share or at least sustain this strategy?

That's correct, Ryan. What we see, we are waiting to see what the system is going to be able to grow. In our case, we maintain our strategy of gaining market share. We are confident on that.

Speaker 7

And.

Speaker 1

The point is what is the system going to grow? We have liquidity, we have capital, we have a strategy. If the demand is there, we are going to be there.

Perfect. Super clear. Thank you.

Speaker 6

Our next question comes from Pedro Leduc from Itau BBA, please. Mr. Leduc, your microphone's open.

Hi guys. Thank you so much for taking my question. Two quick ones please. Still in respect to loan book growth, could we see perhaps a shift towards more corporate than retail? It seems like in retail that NPLs are stinging a little bit more. You still make the 50s but in a different shape than we're currently seeing. That's the first and then the second. If you could try help us reconcile a bit how you move from the current ROEs towards double digits by year end. I'm specifically looking at the provision coverage for bad credit. 115% looks historically low, especially with the shape of NPLs that we're seeing. I'm having a hard time reconciling how you can improve profitability growing loans with probably a little bit higher NPLs and with low coverage.

The only answer I can think about is maybe NII is accelerating a lot in the second half. If you could help us bridge this, that would be great. Thank you.

Speaker 7

Okay.

Speaker 1

Morning Pedro. Thank you for your questions related to the first one. Yeah, so it's true that we are, so the whole system, not in our case again, no. The strategy is remaining the same, talking about retail and also commercial. What we see is that this acceleration in consumer loans is due to higher NPLs in the whole system. We think we will grow less in this portfolio, but the growth in credit cards is still high. Maybe less consumer loans, a bit more credit cards, and of course SMEs and commercial and CA companies are the ones maintaining the growth. Maybe due to the volatility in interest rates and higher levels, it is making the short-term credit slow down a bit.

It has to be something, and we hope in a couple of months the volatility is over and we can see again a good dynamic in terms of commercial and CAV credits. You can see a bit of change in the mix of growth, but it shouldn't be that different, I would say. In terms of the path to go from ROEs in this semester compared to our guidance, we are not that far. If you see the accumulated ROE in the semester and maybe considering the higher NPLs, what we see is a very good performance in fees and commissions and in expenses. In expenses, that's one of the key messages I would highlight. Also, the NIM is behaving in a very stable way considering this volatility.

I was talking about maybe you can see some negative impact due to the quicker deposit adequation of the interest rates than the credit ones. In our case, our balance sheet is quite well matched between short-term liabilities and credits. In that sense, you shouldn't be considering a big impact there. It has to be something very limited in time, so maybe a month, and then you can see a stable evolution. That's what we see for these five or six more months of the year.

That's clear. Thank you so much.

Speaker 6

Our next question comes from Mario Estrella from Itau BBA, please. Mr. Estrella, your microphone's open.

Thank you for taking my question. My question is related to this very high real rates that we've seen in the last couple of months, I would say. It seems to be, you know, sort of a struggle between the banks and the Treasury. The Treasury wants to take more liquidity out of the system and banks are doing so, but in exchange of really high rates.

Right.

The struggle has resulted in higher rates. For me, it's like what are the drivers that apparently are making the banks ask for these higher premiums in.

Order.

In every auction of the Treasury? What impacts have you seen in loan demand? Right, we saw the activity data yesterday that came a little bit below consensus. It seems to me it's related to the higher rates or if it's not, please correct me. I guess that would be the two questions, right? What are the drivers for the bands to add for more premiums in the auctions and what are the impacts on the credit demand going forward?

Speaker 7

Right.

Speaker 0

Hi, Mario, this is Diego Cesarini. How are you? Thanks for the question. I would say that, you know, the government is worried about inflation. We all know that it's a main priority for them to bring it down as soon as possible. In the previous moments before the election, I think that it's crucial for them to keep FX stable in order not to affect inflation. In that sense, what they have been trying to do is making yields, making interest rates higher in order to keep FX as quiet as possible. It is not that we are asking for more yield in every auction, it's simply that once they raise the levels of the reserve requirements that we have to comply with, of course we need to collect part of our bonds in order to comply with those requirements.

They are making the system work with very scarce levels of short-term liquidity because banks are very liquid. As an example, we have 50% of legal assets compared with deposits. We are very liquid. What we are now is working with no short-term instruments. We don't have a one-day instrument like we had a couple of months ago. We need to be very tidy in how we manage our daily balances on our accounts. That is a little difficult to do from a technical point of view. That is bringing some trouble, some problems in the daily operations. As Carmen said, this is something that we see as provisional. We think in a couple of months things will turn back to normal. Regarding loan demand, these levels of interest rates of course are affecting loan demand on both segments, but mainly on the commercial side.

We are not far from complying with our yearly target of 50% loan growth as Carmen mentioned before. We think that this is transitory.

Okay, that's very helpful, thank you. If I may, a quick follow-up. How are your expectations for fees? As I saw, it went down a little bit this quarter, and I understand that that's a business that you want to actually strengthen going forward. What happened this quarter, and how do you see it evolving in the next period?

Speaker 1

Hi, this is Carmen again. If you take a look on the year over year growth, you can see a 20% increase in fees and commissions. When you take a look quarter over quarter, there you have some non recurrent impacts in the first quarter. That explains why we would have a drop in the second quarter. I think the most important thing is to look not only against last quarter but how are we going to perform in a year. The point is that we are working hard on FISA commissions. That's why I mentioned that point because we know we have a gap when we compare ourselves to other peers or the banking system and we have a plan there. That's the reason why I think this is one of the levers to have a better performance in that line.

Yeah, super clear. Thank you. Thank you both.

Thank you.

Speaker 6

Our next question comes from Brian Flores from Citi, please. Mr. Brian, your microphone's open.

Hi Tim, thank you for the opportunity to make a follow up here on Mario's question. I think I understood the effect on credit demand but just wanted to understand if this is net positive or negative for treasury results. I know as you mentioned it's short term but it should end and should have an impact for the full quarter, maybe more than everyone was expecting. I just wanted to check with you if this is net positive or negative vis a vis what we had maybe, I don't know, three months ago. In terms of the treasury results, is this impacting as a benefit or is it neutral? Any color here I think would be great.

Speaker 1

I'm not sure if I got your question, Brian. You're talking about Treasuries standalone?

I'm assuring, I think Diego mentioned that you're managing liquidity and participating in auctions. Of course, the rates sometimes are very high and they could at some point be a benefit. I know the activity here on this segment from your Treasury Department should have an impact on results. That is the question.

Speaker 0

Okay, let me take it, Carmen. I would say that in terms of, as Carmen mentioned before, in terms of short term results, it's neutral to slightly negative because we have a similar amount of short term liabilities there. We include, of course, our deposits, our time deposits, and our short term sight accounts that pay interest. On the asset side, we have loans and, of course, bonds. When you amount those two amounts, they are very similar and they are repricing. Maybe the liabilities reprice a little faster because, of course, sight accounts are on a daily basis, and time deposits, you know, most of them are 30-day deposits. When you consider our short term loans and short term securities, maybe they take between a month. We have one-day loans, so, of course, they take between one day and probably two or three months.

In the very short term, maybe it's slightly negative. I would say that in the second month, the effect is already offset. Regarding our bond positions, I would divide it in three components. The first one is these fixed rate bonds. Our portfolio is very, very short term. Our average maturity is below 40, 45 days, so there is no impact. We reprice almost immediately. We do not have a significant position on long term leg ups, which are fixed rates. Then one third of our portfolio adjusts on a daily basis because those are these dual bonds which adjust by the TAMAR interest rates, which is the interest rate that we pay for wholesale time deposits. Just as an example, that rate was around 30% one month and a half ago and yesterday closed at 60%.

So one third of our portfolio reprices every day regarding what happens with the price in the secondary market, but our valuation does not show that. That goes to the other comprehensive income, the difference. The other third of our position is our inflation adjusted portfolio, which, of course, if inflation does not go up as interest rates, which is the scenario that we are waiting, we expect inflation to remain very stable. On that position, yes, we are not getting there the benefit of interest rates going up. In general terms, we have a smaller inflation adjusted position than the financial system as a whole, so we are comfortable with the situation. It will be a very, very short impact, probably that we will see it in August, but by September we are expecting to have a neutral effect.

No. Very helpful, Diego. Thank you.

Welcome.

Speaker 6

Just as a reminder, if you wish to ask a question, please use the raise hand button. Wait while we pull for questions. Our next question comes from Martín Argento from Delta Asset Management.

Speaker 7

Please.

Speaker 6

Mr. Argento, your microphone's open.

Speaker 0

Please.

Speaker 6

Please, Mr. Gento, activate your microphone and ask a question.

Oh, sorry. Do you hear me?

Speaker 7

Yeah.

Speaker 6

Now we can hear you.

Yes. Okay. Following the removal of FX controls in April 2025, could you comment on how relevant FX trading and dollar related transactions could become for BBVA Argentina's earning going forward? Should we think about this as some material or recurring revenue source or more as an opportunistic line that may fluctuate with market conditions?

Speaker 1

Hi Martín. Related to FX and exchange rate, the scenario we are managing as for this year is that if the fiscal surplus, inflation, commercial balance sheet, and all the macro tools that the government are using continue in this trend, we believe they will continue in this direction. If all of this goes in this direction in the following months, we are not expecting the rate to have a quite differential evolution. I would say that you know that in our balance sheet the position in dollar currency is not so significant. Maybe 15% to 20% of our balance sheet is dollar currency, and we are not expecting something significant coming from this position together with a year-end FX rate around ARS 1,400 per dollar.

Okay, thanks.

Speaker 6

Just as a reminder, if you wish to ask a question, please use the raise hand button and wait for questions. Thank you. This concludes the Q&A section. I'll now hand the floor back to BBVA Argentina's team for any closing remarks. Please go ahead.

Speaker 7

Okay, thank you all for hearing us today. If you have any further questions, please do not hesitate to get in contact with us. Have a very nice day.

Speaker 6

This does conclude today's presentation. We appreciate your participation and wish you a very good day.