Banco BBVA Argentina - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning, everyone, and welcome to BBVA Argentina CC 4Q24 and FY 2024 Results Conference Call. Today with us are Mrs. Belén Fourcade, Investor Relations Manager, and Mrs. Carmen Morillo Arroyo, CFO, who will be available for the Q&A session. These presentations and the 4Q24 earnings release are available on our 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. We are availing ourselves of the Safe Harbor Provision found in Section 27A of the Securities Act of 1933 under the U.S. Federal securities laws. 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 the BBVA Argentina Annual Report on Form 20-F for the fiscal year of 2023, filed 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 Belén Fourcade. Please go ahead.

Belén Fourcade (Investor Relations Manager)

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 BBVA 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 basis points to less than 700 basis points at the end of 2024.

On the other hand, one of the main factors of uncertainty is associated with the evolution of the 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 3 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 4 and 5, I will now comment on the bank's fourth quarter 2024 financial results. BBVA Argentina's inflation-adjusted net income in the fourth quarter of 2024 was ARS 64.7 billion, 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: 1) higher loan loss allowances, mainly driven by sustained growth in activity; 2) lower net free income; 3) lower net interest income as a result of a lower average monetary policy rate; and 4) 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 in 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 to the P&L lines in Slide 6, we are going to comment on the financial results of the year.

In 2024, BBVA 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 ROA of 2.5% in 2024, compared to an ROE of 13% and an ROA of 2.7% in 2023. The 25.8% fall in real terms of the 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 2) 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 ARS 2.9 trillion, falling 17.3% year-over-year. This was a result of: 1) a fall in 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 2) lower income from loans, also as 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. This performance is mainly due to: 1) a lower income from collecting services and transfers, within an overall decline of the lines that are part of fees linked to liabilities, and 2) higher expenses in foreign currency. Net free 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 ARS 1.7 trillion, decreasing 3.9% year-over-year in real terms, of which 31% were personnel benefit costs. In the year, personnel benefits fell 4.6%.

In spite of wages following the pace of inflation, the year-end increase was lower, with adjustment of stock of vacation days and variable remuneration. 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 NIM was 35% versus 37.3% in 2023, recording a 234 basis points 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 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 ARS 7.6 trillion, increasing 28.7% or ARS 1.7 trillion quarter-over-quarter and 75% or ARS 3.3 trillion 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: 1) a 25.5% increase in credit cards, followed by 2) a 26.5% increase in discounted instruments, and 3) a 29.2% increase in customer loans. This is followed by a 26.1% growth in loans to personal 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, BBVA Argentina managed to increase the retail, commercial, and total loan portfolio by 36.6%, 41%, and 39% respectively during the quarter, surpassing quarterly inflation levels in all cases. As of the fourth quarter of 2024, the total growth, loans, and other financing over deposits ratio was 77.5%, above the 64.9% recorded in the third quarter and above the 55.5% in the fourth quarter of 2023.

Carlos Gomez-Lopez (Analyst)

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 ARS 9.9 trillion, 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.

Belén Fourcade (Investor Relations Manager)

Private non-financial sector deposits in pesos totaled ARS 6.3 trillion, 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 accounts. 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 a 0.4% fall in savings accounts. BBVA Argentina continues to show a 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, totaled 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 transactions 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 BADLAR adjustment and two of them in U.S. dollars, all of them maturing in a year or less. Without considering the issuance of corporate bonds in September, BBVA 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 move for questions.

Operator (participant)

Our first question comes from Carlos Lopez from HSBC. Please, Mr. Lopez, your microphone is open.

Carlos Gomez-Lopez (Analyst)

Hello everyone, and thank you for taking my call. You may have said this before and I missed it. So what are your expectations for growth in loans, deposits, and profitability for 2025? Again, with the understanding that there is a lot of uncertainty here.

Belén Fourcade (Investor Relations Manager)

Hi, Carlos, how are you? Of course. On the side of private loans, we are expecting the system to grow about between 40%-45%, and we are expecting ourselves to grow around 60% or 65%. Of course, focusing on the increasing market share that we have been going on for this whole year and for the past at least five years. Of course, all of this is subject to the uncertainty that you're mentioning. Mm-hmm.

Now, this is 40%-45% nominal, and you're 60%-65% nominal, and you referred to 30% forecast for inflation. Is that your forecast or that is the market consensus? No. First of all, the 40%-43% for the system is real terms, and 30% is real terms too. So we are just wait a second while we reconnect the speaker. I'm speaking just in real terms. We are expecting 30%.

Carlos Gomez-Lopez (Analyst)

Sorry, I'm sorry, Belén.

Belén Fourcade (Investor Relations Manager)

Usually, it's a little bit more conservative. Oh, sorry. I don't know where you heard. We are speaking all in real terms.

Carlos Gomez-Lopez (Analyst)

Yep. Hi? Yes, yes. Yeah. So you were saying that this 60%-65% of growth that you expect is in real terms. And again, can you repeat what your expectation or your economic team expectation as of today is for inflation for this year?

Belén Fourcade (Investor Relations Manager)

Yes. We are expecting 30%.

I understand that we are being a bit more conservative than the market consensus, but we usually are. So we are keeping our expectations on 30 for the time being.

Carlos Gomez-Lopez (Analyst)

And if you don't mind, could you go over your other economic assumptions? What do you expect for growth?

Belén Fourcade (Investor Relations Manager)

And most importantly, what do you expect for interest rates and for the exchange rate? Okay. For the time being, we are seeing the monetary policy rate right now at 30, no, sorry, 29. But we are seeing 2025 ending in a 24% monetary policy rate, an FX rate of around ARS 1,300 at the official rate, and a GDP growth of 5.5% for 2025.

Carlos Gomez-Lopez (Analyst)

Very good. Thank you very much.

Operator (participant)

Thank you. Once again, if you wish to ask questions, please use the Raise Hand button or type it down on the Q&A field.

Belén Fourcade (Investor Relations Manager)

Wait while we move to questions. Our next question comes from Carlos Lopez from HSBC. Please, your microphone is open, sir.

Carlos Gomez-Lopez (Analyst)

Hello, Belén. And since there doesn't seem to be a lot of other questions, I'm going to do a follow-up. So we mentioned your growth. I think I also asked earlier about your expectations for profitability. We have seen your peers talking about either 10%-15%, or in some cases, 15%-20%. Do you look at your profitability in terms of ROE or ROA, and what is a range that you think is realistic for 2025 and beyond?Thank you.

Carmen Morillo Arroyo (CFO)

Hi, Carlos. So we are talking about these mid-teens in ROE, maybe biased a little bit lower. So, yeah, we would contain these expectations in terms of ROE.

Carlos Gomez-Lopez (Analyst)

So again, when you said a bit lower, you're talking more like 12%-13% as opposed to 15%-16%?

Carmen Morillo Arroyo (CFO)

Yes, that's right, Carlos.

Carlos Gomez-Lopez (Analyst)

Very good. And that's for this year. I mean, is that a temporary thing? And again, I realize that everything is in flux and it can change a lot, but when you look at the 2026-2027, what do you think is a sustainable rate of return for you, for the system, in an environment of more growth, but also lower inflation?

Carmen Morillo Arroyo (CFO)

So yes, as you mentioned, it's difficult to say that as of today. Having said that, we are supposed that you can maintain these mid-teens, and maybe by the end of 2027 or so, maybe you can see something better. But we are not expecting much higher figures. Okay.

Carlos Gomez-Lopez (Analyst)

Since you are growing so much, and eventually you will have more consumption of capital, you already adjusted your capital with a big dividend last year. Actually, if you can remind me exactly how much you paid in 2024, what is your capital plan for 2025? Do you want to give a dividend? And if so, do you have any particular level in mind?

Carmen Morillo Arroyo (CFO)

Okay. We are waiting for the regulation. So that's one thing. The other thing is that we are projecting that we can pay a dividend this year if we are allowed to do so. Of course, much lower than the amount we paid last year, which was, so the approved dividend was around ARS 400 million.

So, we are expecting to pay a smaller payout based on the income from last year and not from the accumulated income as it was last year.

Carlos Gomez-Lopez (Analyst)

Okay, but you haven't defined it yet. I mean, we understand you haven't been approved, but do you have an idea? Are we talking, you know, 20%, 50%, 70%?

Carmen Morillo Arroyo (CFO)

I would prefer not to tell you an exact figure. So just say that it will be a lower payout compared to last year.

Carlos Gomez-Lopez (Analyst)

Okay. And do you expect to do this in a single payment, or you will have to spread it out as in previous?

Carmen Morillo Arroyo (CFO)

It will depend on regulation, Carlos. So we have to wait until the central bank defines how we can pay.

Carlos Gomez-Lopez (Analyst)

All right. Thank you very much for your answers. Thank you.

Belén Fourcade (Investor Relations Manager)

Just as a reminder, 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 move for questions. Our next question comes from Brent Aroncel from Portales. Can you address asset quality, loan losses, and reserves? Thank you.

Okay. Let's say for the quarter and for the whole year, NPLs have been very low. For BBVA, it has been like one of the lowest of the system, if not the lowest, at some point, with 1.13% of NPLs. The system is, I mean, just to talk about the Argentine system, NPLs are very low. For December, the system's NPL was 1.56%, around that. So we don't see any concerns on the side of non-performing loans. We have seen an outstanding increase in loans for the fourth quarter.

You can see that in our earnings release. We have increased our coverage, and mostly on the P&L, we can see an increase in loan loss allowances. But this is all connected to the remarkable growth that we had in the last quarter. I already commented on what the expectations on loan growth will be for 2025. We don't see NPLs suffering much. We see a very slight increase, but in line with what we are seeing. We are not seeing any concerns on the side of asset quality, really. I'm just going on what I'm seeing on the questions. Sorry. Yeah, I understand your concern on the side of profitability, but asset quality is sort of disconnected on this.

Because the profitability is mainly explained by what we have seen on the dynamics of exchange of, sorry, of interest rates in the market. And also, you have to take consideration that we started 2024 with a 100% nominal interest rate on the monetary policy rate. And this profitability came from securities, not from loans. So this year, you had a transition from the participation of securities on your total assets, that went down to around less than 20%, in contrast with loans that went above 50% of your assets by the end of 2024. So if you combine the transition from securities to loans and the fact that rates declined aggressively from 100% to 32%, this is what explains not just for BBVA, but for the rest of the banks on why you see mostly in net interest incomes going down.

But this is logical for the system. It's not a BBVA thing. You may compare, I don't know, some of our peers having gone on M&A transactions in the past. So it's not really comparable in that case. The story of why NIMs are going down is what explains your profitability and not the growth in loans and in asset quality.

Operator (participant)

Our next question comes from Adriano Mariani from Sagil Capital. Please, Mr. Mariani, your microphone is open.

Adriano Mariani (Analyst)

Hi, hello, team. And congratulations on results. I guess, can you touch a bit on what you expect for funding in terms of kind of deposit growth, expect etc.? I mean, you guys are expecting a lot of growth in loans.

So if you can touch quickly on that, and also kind of what level of kind of percentage of assets in securities should we expect this kind of a long-term level? Thanks.

Belén Fourcade (Investor Relations Manager)

Hi, Adriano. On the side of funding, we are not concerned about liquidity. We have deposits growing. This year, they have grown 25%. In real terms, of course. We are expecting to match this loan growth that we are focusing on what you have already seen in issuance of corporate bonds. We have issued, I think, five corp, no, sorry, from Class 29 to Class 34. They are five corporate bonds, both in pesos and in U.S. dollars. We still see that there is still plenty of space for going on to corporate bonds for funding.

We don't see any need for additional capital, at least. I don't know, like at least 2026.

Adriano Mariani (Analyst)

All right, just a quick follow-up. These corporate bonds, are they dollar-denominated or peso-denominated?

Belén Fourcade (Investor Relations Manager)

We have both. We have fixed, no, variable rate peso corporate bonds. And we have also issued USD-denominated bonds.

Adriano Mariani (Analyst)

Okay, thanks. Maybe a last follow-up on the growth. What, how do you expect kind of the split to be between commercial and consumer, and maybe within consumer, where you expect to see the areas of largest growth? Thanks.

Belén Fourcade (Investor Relations Manager)

Well, we have already seen that we have been focusing on the commercial segment, and this has shifted the proportions of retail and commercial to around, let me see, like more than 50% of the portfolio is commercial.

We see that growing in line with what we would expect with the incipient growth in GDP and in activity as companies are sort of the first ones to start taking loans. But then we have to bear in mind that we have now mortgages going on since July, and we see those retail segments growing, mortgages and also personal loans, which we have focused on, and we have grown a lot in terms of market share of personal loans. But, well, we are going on both commercial and retail. But for the last few quarters, the strategy has been a little bit more focused on commercial, and that's why the mix changed from retail to mostly commercial. But we are not doing it in detriment of retail at all.

We are going on both sides.

Adriano Mariani (Analyst)

Thanks. Very helpful.

Operator (participant)

Just as a reminder, if you wish to ask a question, please use the Raise Hand button or type it in the Q&A field. Wait while we wait for questions. Once again, if you wish to ask a question, please use the Raise Hand button or type it in the Q&A field. Wait while we wait for questions. Just as a reminder, if you wish to ask a question, please use the Raise Hand button or type it in the Q&A field. Thank you. This does conclude the Q&A session and the conference call for BBVA Argentina's fourth quarter 2024 earnings call. We appreciate your participation and wish you a very good day.