Grupo Financiero Galicia - Earnings Call - Q3 2025

Transcript

Speaker 0

Thank you. Good morning and welcome to this conference call. According to the monthly indicator for economic activity, EMAE, the Argentine economy recorded a 5% year-over-year increase during September. In year-to-date terms, the economic expansion reached 5.2%. During the third quarter of 2025, the primary surplus reached 0.5% of GDP, and an overall surplus of 0.1% of GDP was recorded. This result was explained by revenues increasing by 32.8% year-over-year, whereas primary spending rose 30.6%. During the first 10 months of 2025, the primary balance stood at 1.4%, while the financial balance amounted to 0.5% of GDP. The National Consumer Price Index accumulated a 6% increase during the third quarter of 2025 and a 24.8% year-to-date increase as of October.

After four consecutive months below the 2% mark, headline inflation was 2.1% in September and 2.3% in October, accumulating 31.3% in the last 12 months, the lowest level since July 2018. The third quarter was marked by high volatility in the months leading up to the midterm elections. The exchange rate came under pressure, at times nearing the upper limit of the floating band, which prompted the central bank to step in with foreign exchange sales. Nonetheless, the exchange rate averaged ARS 1,400 per dollar in September 2025, a 15.6% devaluation compared to June 2025. Meanwhile, peso-denominated interest rates saw sharp swings, reflecting increased uncertainty and liquidity shifts. In fact, the average rate on peso-denominated private sector time deposits for up to 59 days averaged 48.7% in September 2025, up 16.5 percentage points from June 2025 levels.

Private sector deposits in pesos averaged ARS 94.1 trillion in September, increasing by 5.6% during the quarter and 53% in the last 12 months. Time deposits in pesos rose 13.1% during the quarter and 76.3% in the year. Peso-denominated transactional deposits decreased 2.4% during the third quarter but increased 31.5% in year-over-year terms. Private sector dollar-denominated deposits amounted to $32.6 billion in September 2025, increasing 7.2% during the quarter and rising 38.9% in the last 12 months. Peso-denominated loans to the private sector averaged ARS 79.3 trillion in September, showing a 9.7% quarterly increase and a 105.4% year-over-year. Private sector dollar-denominated loans amounted to $18.3 billion, recording a 15.8% quarterly growth and a 153.4% annual increase.

Turning now to Grupo Financiero Galicia, net loss for the quarter amounted to ARS 87.7 billion due to losses from Banco Galicia for ARS 104 billion, from NaranjaX for ARS 6 billion, and from Galicia Seguros for ARS 12 billion, partially offset by the profits from Galicia Asset Management for ARS 25 billion. This loss represented a -0.8% annualized return on average assets and a -4.7% return on average equity, while accumulated annualized figures for the fiscal year reached 0.9% and 4.7%, respectively. The quarter includes extraordinary restructuring expenses associated with the merger with HSBC Argentina for ARS 105.3 billion, net of income tax. The quarter ROE without the extraordinary expenses would have been 1%, and the nine months ROE 6.9%.

The result from Banco Galicia included ARS 101.1 billion of extraordinary expenses, and in addition, were negatively affected by the increase in the cost of risk associated with the growth of the loan book and the increase in the non-performing loans in the retail segment, particularly in personal loans and credit card financing, together with a decrease of financial margin associated to an environment of high interest rates and a regulatory increase of reserve requirements. It is also worth noting that most of the comparisons will be made against the second quarter of this fiscal year, as figures for the third quarter of 2024 do not include information about the acquired business of the former HSBC Argentina.

Net operating income decreased 23%, as net interest income decreased 10%, net results from financial instruments were down 89%, and loan loss provisions increased 26%, which were partially offset by a 9% growth of net fee income and a 12% increase in profits from gold and FX quotation differences. Average interest earning assets reached ARS 22.7 trillion, 8% higher than in the previous quarter, primarily due to the increase of the average portfolio of loans, 5% in pesos and 27% in dollars. In the same period, its yield decreased 259 basis points, reaching 30.1%. Interest-bearing liabilities increased 27% from June 2025, amounting to ARS 19.9 trillion, primarily due to the increase of time deposits in pesos and of saving accounts in foreign currency. During this period, its cost increased 88 basis points to 16.5%.

Net interest income decreased 10% when compared to the second quarter because of a 35% increase in interest expenses due to a 36% higher interest rate on time deposits, partially offset by a 7% increase of interest income, mainly due to a 12% higher interest on loans and other financings to the private sector. Net fee income increased 9% from the previous quarter due to a 6% higher income from credit card fees and of 19% from fees on deposits. Net income from financial instruments decreased 89% due to an 88% lower result from government securities. Gains from FX quotation differences were 12% higher from the year-ago quarter, including the result from foreign currency trading following the lifting of exchange restrictions. Other operating income increased 11% in the quarter, mainly due to the 45% increase in other income, primarily corresponding to credits recovered.

Provision for loan losses increased 26% due to the growth of the financing portfolio and to an increase in delinquency that is limited to personal loans and credit card financing to individuals in pesos. Personal expenses were 83% higher than in the second quarter due to the voluntary retirement program recorded in connection with the restructuring plan following the acquisition of HSBC Argentina's business. Administrative expenses were 11% lower than in the previous quarter due to a 32% decrease of expenses for maintenance and repair of goods and IT and to a 14% decrease of higher administrative services. Other operating expenses increased 5% due to a 7% higher turnover tax. Results from the net monetary position decreased 9% from the second quarter following the declining evolution of inflation. The income tax charge was positive as the pre-tax net income was a loss.

The bank's financing to the private sector reached ARS 20.4 trillion at the end of the quarter, up 14% in the last three months, with peso financing increasing by 5% and dollar-denominated financing growing 35%. Net exposure to the public sector was 3% down in the previous compared with the previous quarter, primarily due to a 38% decrease in government securities in pesos measured at fair value through OCI, offset by an increase in government securities in pesos at amortized cost. Deposits reached ARS 22.9 trillion, 8% higher than a quarter before, mainly due to a 26% increase in dollar-denominated deposits, mainly time deposits that were up 72%.

The bank's estimated market share of loans to the private sector was 14.8%, 30 basis points higher than at the end of the previous quarter, and the market share of deposits from the private sector was 16.4%, 40 basis points higher than in the second quarter of 2025. The bank's liquid assets represented 94.5% of transactional deposits and 59.2% of total deposits, compared to 94.3% and 65.2%, respectively, from a quarter before. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 5.8%, recording a 140 basis points deterioration as compared to the 4.4% of the second quarter. As I mentioned before, the deterioration is limited to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 105%, down 16.4 percentage points from the 117.9% recorded a quarter ago.

As of September 2025, the bank's total regulatory capital ratio reached 22.1%, decreasing 160 basis points from the end of the second quarter, while the tier one ratio was 21.8%, down 140 basis points during the same period. In summary, the third quarter was marked by high political effects and monetary volatility and negatively affected margins and asset quality. In addition, the results were affected by a very high one-time expense due to a restructuring of the merged banks. Despite this, Grupo Financiero Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect an improvement in profitability during the fourth quarter and next year. Now, Gonzalo Fernández Covaro will make some additional remarks. Hi everyone. Continue with what we see for the future.

I mean, regarding how we see the rest of the year, October continued with low margins due to the high interest rate that we saw in the third quarter. We are already seeing a fast improvement in margins in November. We are already really seeing margins at the same level as second quarter and the third half of the year on average in November, and we expect the same for December. Portfolio performance still needs some time to get back on track, so we will still see a deterioration in the fourth quarter, a lower trend than before, but still some. Overall, bank will be better, will improve returns mainly due to the margin improvement. NaranjaX will have some headwinds in terms of portfolio performance. With this mix, we are seeing the ROE for the full year 2025 around 4%, the reported one.

If we exclude the non-recovery integration cost that we mainly booked in the third quarter, we should be around 6%. Talking about 2026, we are expecting an ROE in the low teens range, I would say between 11% and 12%. Of course, a lot of moving targets for next year. We will be updating this guidance in future quarters, but this is our base case scenario to be around 11%-12%. Margins, we will see improving them in the first months of the year together with what we are seeing in November, December. Some kind of slight reduction as a consequence of the rate reduction, but not really high, the reduction. We still see healthy margins next year, I would say, in the levels of the second quarter.

NPLs, we expect a peak on NPLs in March of next year, but then improving as the good portfolio that we are originating is gaining weight in our mix. We will end the year with NPLs better than the runway that we are having now. Regarding costs, we are also seeing a reduction year-over-year in cost because of all the restructuring we have done. You saw the restructuring cost we booked in the third quarter, and that generated a 1,000 heads reduction in the group quarter over quarter. If we add up all the year, we have a headcount reduction of 2,000 heads for the year. That is, of course, generating cost reduction for next year. We are seeing already fourth quarter of next year. Our projections show a fourth quarter of next year ROE run rate already at 15% level.

That put us with a solid base to start 2027 and deliver ROEs about 15, as is the target ROE that we are aiming for the longer future. With that, I mean, we are also open for any questions you may have. Thank you. We are now going to start the Q&A section for investors and analysts. If you wish to ask a question, please press the raise hand button. If your question has already been answered, you can leave the queue by clicking on the same button. Wait while we pull for questions. Our first question comes from Danielle Vas from Safra. Please, Mr. Vas, your microphone is open. Hi, hi, Gonzalo. Hi, Pablo. First time being here. Thank you for the opportunity. I'm looking at your capital ratio of 21 at the group level, and it was down 120 basis points from the second quarter.

I'm just wondering if you said that your cohorts, new cohorts of origination aren't getting better, you expect a peak in NPL in March. Still, your ROE is super low compared to your targets, right? How do you expect that capital would be ranging in this scenario? What's your bottom of capital that you would like to work as a risk-taking level for the group or for the controller? Which is this bottom that you would like to limit your capital? If you need at some point to reduce your origination and how you're dealing with the new originations compared to your beginning of the year, because the beginning of the year, the longer duration, I think it hurt your margins, mainly your cost of risk. When we compare to other players, other fintechs, their duration is faster to adjust.

Both these two questions here blend into each other. First, capital and how is your origination compared to your duration in the beginning of the year going right now? Thank you. Regarding capital, our capital also was impacted by the reserving OCI, the other comprehensive income with the bonds that are valuated at hold to collect and sale that you have a reserve in equity that moves between the accrued income in the bonds and the market to market. As you know, in the third quarter, there was a big reduction in bond prices. We had a ARS 160 billion negative reserve in equity due to those bonds that affects, of course, the equity ratio. In October, our tier one ratio in October is already at 24.5% in the talking about the bank. That is, of course, because now this OCI reserve is slightly positive.

It has an improvement of ARS 160 billion in one month because of, as you know, after the elections, the rally that all the bonds had. Really, with these levels of capital, we are comfortable. I would say that our minimum appetite to operate is 13.5%, 13%, 13.5%. We do not expect to get close to that in the near future. We believe that with the projection we have, we have enough capital at least until the end of 2027, and without any limitation for growth. I would say that, of course, that is something that we monitor and we will be updating regularly. With this, now that the reserves of bonds are stabilized, we do not see really the need for capital or any restriction in the growth of our loan book, at least the whole next year and 2027.

Regarding the second question, I think I didn't get it very well. Origination of loans and maturity of the loans. I mean, we continue to originate, I mean, both commercial and consumer lending. We have put some slowdown in the consumer lending due to the portfolio quality, as you have seen. First mortgages, we reduce significantly the origination of mortgages. In that case, not because of quality, but because there is not any securitization market. As you know, we cannot be putting every year lending without any securitization market where we can offload those loans. We continue in the consumer sector, we continue lending personal loans that may have a duration of two years, two years and a half. Now we are also increasing car loans or auto loans with that same duration. Talking about commercial financing, we are still originating very short duration.

Slightly, we start to increase duration because the demand was not there. Now, with our after elections, with Argentina stabilizing and with a lot of growth potential in the country, we are expecting to see more projects for our clients to finance longer terms. That is not yet happening. We are expecting that next year, the duration in the commercial lending should be getting longer than what we have today. Okay, thank you. Thank you for the answers. No problem. Thank you. Our next question comes from Ernesto Gavilondo from Bank of America. Please, Mr. Gavilondo, your microphone is open. Thank you. Hi, good morning, Gonzalo, Pablo, and Etienne. Thanks for the opportunity to ask questions. My first one is on your long-road expectations. What should we think for next year? If you can give us some color on the expectations per segment.

I believe there have been some announcements on private investments in Argentina. Have you quantified an amount, or can you give us some direction or color in which regions and sectors are you perceiving these new private investments? How would you be willing to participate through corporate loans, as you mentioned, SME loans? That will be very helpful. My second question is on asset quality. I believe, I am just double-checking, you mentioned NPL ratio could be peaking by March next year. If that is correct, if you can provide any potential range. If you are seeing the same trend on the cost of risk, if you are expecting cost of risk also to peak by March next year, and how should we think overall for the cost of risk next year? Thank you. No, thank you for the question.

I mean, talking about, yeah, the color of next year, we see, I mean, growing lending in 25%, more or less, in real terms. I mean, we want to continue gaining market share. Of course, this number will be adjusting according to how the market grows. We see market growing around 20-22% in real terms, of course. In terms of sectors, yeah, we are growing. I mean, I think that the commercial lending will be capturing a lot of attention. I mean, as you said, there are a lot of projects and investments in the country that we have a lot of customers already starting to talk about it. We also want to continue growing the consumer lending with, of course, the new origination tools and the models adjusted in order to book better grades. We will start a bit slower in the first month.

Not start, continue a bit slower as we are having this month, and then restart the full growth as we see that the quality is improving. Talking about commercial lending, yeah, we are seeing a lot of investment mainly in the oil and gas sector. As you know, Vaca Muerta continues with a lot of attention in the mining segments, I mean, sector, sorry, copper, lithium, a lot of focus there also. We are also very present in the agri business. This year, the agri business is going to have a very good harvest. We are anticipating good investments for next year also in this sector that we will be also joining there.

We are also starting to see M&A starting to move, local M&A, companies, some privatizations that may come close that we do not have yet the names, but we are starting to hear rumors that some may not be huge privatization, but smaller companies that can come to the market. Of course, the idea for us is to be close to our customers there. Some of those projects are going to be too big for the local financial market to finance because when we talk about oil and gas, the amounts are huge. We will always be there to participate with smaller tickets or to be there in transactions that local balance sheets can afford. Again, we were very close to our commercial customers. We see a sentiment on appetite for Argentina, on appetite for investing.

That's where we are seeing that our next year, we are going to be growing faster than the market. That will help also to improve the returns year over year. Talking about NPLs, yes, we are expecting our peak on NPLs around March next year. We are seeing that the peak would be around 7%, 6-7%. The cost of risk, yes, again, same thing. We are seeing also peaking next year in March for the bank I'm talking. We will see more or less cost of risk between 9-10% the peak, then going down those both ratios to end the year at lower numbers. That is what we expect. I mean, we are already seeing the new harvest of consumer lending at much better behavior than the old ones.

We still need the time to digest the older portfolio and see the results that will come after, I would say, second, third, and fourth quarter of next year. No, thank you very much. Super helpful, Gonzalo. Just another question in terms of this potential growth that you can see for the loan book next year. Another competitor just mentioned the possibility to tap the markets next year. Is this something that you are also exploring? Bonds or equity? In bonds, bonds. Bonds or equity. I mean, the financing or equity? Yes, yeah, the financing. I mean, yes, of course, it's something that we have always in our alternatives. We need to see how the windows are starting to open. Really, we are not seeing now the need, but of course, that's something that we are always evaluating.

We need to see, of course, the equation, the profitability equation of the cost that the market could offer at some point. Yes, mainly considering larger tickets or this project that they may come, yes, definitely, it is an alternative that we consider very seriously. Perfect. Thank you very much. Thank you, Ernesto. Our next question comes from Brian Flores from Citi. Please, Mr. Flores, your microphone is open. Hi, Pablo. Hi, Gonzalo. Thank you very much for the opportunity. I just wanted the first question to be a clarification on the ROE trend because you mentioned the peaks of NPLs and asset quality, as you mentioned, cost of risk by March, right, of 2026. You mentioned 11%-12% in terms of real ROE for 2026 with reaching the 15% in the fourth quarter.

Would that mean we should see a mid to high single digit in the first half? Just thinking about the speed of the recovery, right? Apparently, it seems to be a very gradual recovery. Just wanted to check on that trend, Gonzalo. My second question is perhaps a follow-up on Ernesto because I think we're all thinking about external funding, right? You have perhaps one of the best franchises in Argentina, meaning that deposits are very, very relevant. I just wanted to understand if the visible funding cost advantage that you have demonstrated in previous quarters should continue, or do you think, I would say, the funding cost war should, I would say, increase or deepen in 2026? Thank you. No, thank you. First question about ROE trend. I mean, yeah, I mean, we see first quarter slower.

I mean, I would say that the numbers you mentioned could be right. I mean, we see a recovery first quarter. We are still, I mean, margins, we are going to be already in the first quarter at good levels, but we will still have some kind of heavy burden of NPLs still the last months of that. They are starting to recap in the third quarter. I would say that, yes, lower ROE in the first quarter, and then recapping the trend until the 15th in the fourth quarter, and continue with that in 2027. Yeah, your assumption is right in terms of ROE evolution. Remember that the group has also Naranja and the bank, and Naranja also needs to improve that portfolio performance.

That's why also we need a couple of months from next year in order to be able just to go about the two digits in ROE. Talking about the funding, what's the other one, no? Yeah, funding. I would say that, yeah, that's why my question was, I mean, my answer before to Ernesto was, yes, we are analyzing potential debt in the market, but we always look first at our deposit base. We see some possibilities for next year. In deposit, we see that the market liquidity is coming back with interest rate reductions. The market will be also more liquid. We see that there may be some changes in regulations for mutual funds that put some limitations for the ones who go to the market to place funds in the market. That liquidity should come back to banks.

As you know, the money markets are huge holders of funds from deposits from customers in Argentina. They put part of their deposits in banks, but also they go to the market and place those funds in the market in cautions. According to next year, they should be able to put more money of those in the bank. That should also provide more liquidity to banks to lend. That would be another source of liquidity for banks. We are aiming to increase our deposits to gain market share in deposits. All our business line has that mandate because we consider it's the more stable funding and the cheaper one or the more cost-efficient one. Of course, depending on the speed of the credit growth, we may need to go to the market. If we need to do it, we do it.

Our first priority is deposits. We really believe that deposit next year should start to grow better than this year. I would not say same pace than lending, but better than this year. Perfect, Gonzalo. Thank you very much. I think the last guidance you mentioned in the second quarter on deposits growth was around 35% in real terms. I just wanted to check if you are revising this number. Also, I understand, as you mentioned, the deposit growth for 2026 is going to be lower than the portfolio. Yeah, for this year, we are keeping the, yes, those guidance for growth. For next year, we are seeing more like 20% in real terms, deposits, 25% lending. Again, that is something, I mean, a lot of moving targets for next year.

We will be updating those guidance because we will see how we need to see how the country is changing. One month ago, we were with a lot of volatility. Now, stabilizing interest rate reductions. We need to see how everything comes together. That so far is our assumption, around 20% for next year. Thank you, Gonzalo and Pablo. Thank you. Thank you. Our next question comes from Chito Labarta from Goldman Sachs. Please, Mr. Labarta, your microphone is open. Hi, good morning, Gonzalo and Pablo. Thank you for the call and taking my question. A couple of questions also, I guess. Just on the NaranjaX, you mentioned, Gonzalo, right, that needs to recover as well.

Do you think NPLs peak there also in one Q, or how do you see the evolution of asset quality in Naranja and then also your ability to resume growth at Naranja? Second question, just on margins, do you think we saw some pressure this quarter, I mean, just given all the liquidity issues in the quarter? Do you think this is the bottom? Should that already begin to recover in four Q, or will that take a little bit longer until you start to get the loan growth and asset quality under control? Just to think about the evolution of margin in the short term and, I guess, thinking about 2026 as well. Thank you. Yeah, talking about Naranja, yeah, I would say that we are seeing the same, more or less same timing for the peaking. I mean, third quarter, March, April, and next year, same.

They also doing a lot of things. Their turnaround, I would say that they were in things, but they have a shorter duration in lending. They cure their portfolio faster than the bank. Yeah, I would say March should be also the peak for them. We are expecting also an improving on NPLs for Naranja for the rest of the year. Of course, as they go to lower segments, they have bigger swings on the bad, but then on the good at the same time. Talking about NIMS. NIMS, margins, yes. Margins, yes, we saw the bottom was October. I mean, I would say fourth quarter still has October, which is one month with a low margin. In the quarter, you still in the next quarter, you still see one third of the month, I would say, with a bad margin.

I would say October was a bad margin because it was the worst month before the elections, the election month. Then November, really, we are seeing a quick, a fast turnaround and a fast improving in the margin. December, I would say it would be 100% at the second quarter levels. Yeah, to your question, the bottom was, I would say, October, third quarter and October. November, December already recapping, December already at the same or three volatility levels, I would say. For next year, margins will be at good levels. Of course, after the second half, slightly reduction because with the continued rate reduction. Today, what we are seeing is our cost of funding reducing significantly now. Our lending starts to reduce the interest rates at a slower pace because we have already booked longer-term lending at higher rates.

We will enjoy those higher margins first half of next year. We may see some slight reduction, but nothing significant next year yet. In summary, yeah, the bottom was third quarter in October. Okay, no, that's helpful, Gonzalo. Just on the reserve requirements, I mean, they've been reducing a little bit. Do you think it's enough now that liquidity is less of an issue? Do you think that they need to reduce the reserve requirements further from here? How do you think about that and the impact on your liquidity? I would say so far, I mean, so far, meaning these months, it's okay. The central bank, as you know, made some changes in liquidity requirements last week. That was better, mainly in the daily calculation, but also they reduced 3.5% the cash encashments that are at zero interest.

That will also give some improve a bit the margins for banks going forward starting December. This is starting December the 1st. They reduced, so that's not significant for injecting liquidity to the market. I would say that at some point next year, that may be revisited again by central bank because at some point next year, it could be needed. It's something that I wouldn't say that is needed now or the next three months, the next quarter, but at some point, depending on how the market behaves, could be there is an opportunity for a revision on that side. Okay, that's great. Thank you, Gonzalo. Our next question comes from Camila Azevedo from UBS. Please, Mrs. Azevedo, your microphone is open. Hi everyone. Thank you for taking my question. My question is a follow-up on Ernesto's question on asset quality.

I would like to get a better view of the asset quality dynamics during this quarter, mainly between segments. You said we should end the year with better NPLs than current levels. Could you please share more details on that? It could be in general terms, what should we expect? With this, with which coverage ratios would you be comfortable going forward? Thank you. Sorry, Camila, there was a noise in the middle of the conversation. We could not get the first part. Yes, the part of the coverage, not the other part. Sorry. Sure. I will repeat the entire question. I would like to get a better view on the asset quality dynamics during this quarter. Which levels should we expect for the end of the year? You said that we should expect better NPLs. In general terms, at which levels?

Did you get the coverage ratio part? Yes. Okay, perfect. That's it. Thank you. I mean, when we talk about NPL better than the end of next year, not this year, right? I mean, this year, we still, as we said, the peak will be March next year. What we are seeing, and this is for the end of 2026, NPLs, I would say in a range of 4.3%, give or take, more or less, 4-4.3-4.5%. That could be the range of NPLs by the end of 2026. The coverage? I didn't get that. The coverage, the last number is 101.5%. Really, it comes from the model of expected losses. Talking with the Credit Department, they say that the coverage is beginning to grow, and it's likely that at the end of next year, it could end up at 110%.

But really, it's. When you create, we grow your book, you create a lot of upfront reserves, and that increases your coverage. Then you start using those, and that's where we are now. When it comes, now we want to stabilize the portfolio, and that should start growing again. Now we are in the process of using the upfront reserves that were booked when the portfolio grew a lot. Now we are also decelerating the growth. You don't have a lot of upfront books because of new loans, and you are using what you booked before. It's kind of a mathematical thing, but we are comfortable with the level we have. Okay, thank you. Thank you. Our next question comes from Pedro Ofverhenden from Lodestar Securities. Please, Mr. Ofverhenden, your microphone is open. Hi, Gonzalo. Hi, Pablo. Thank you for the call.

Wanted to ask if there are any remaining integration costs from the HSBC acquisition that could impact results in the coming quarters. No, I mean, I would say the restructuring, nothing big. I mean, we may have some small thing in the fourth quarter, but regarding systems that we are shutting down, but not restructuring costs, which is the big portion. We booked everything in the third quarter, not just the people that left in the quarter, but also what we planned that the ones that are leaving till the end of the year. So everything is booked there. Something very small, not related to restructuring, may happen in the fourth quarter, related to system, but really small, nothing important. Okay, thank you. You're welcome, Pedro. You're welcome. Our next question comes from Carlos Lopez from HSBC. Please, Mr. Lopez, your microphone is open.

Hello, and thank you for taking the questions. First of all, congratulations on how brave you are because you are giving predictions for the ROE for the middle of the year and for the end of the year. I hope that those forecasts are actually achieved. More concretely, I realized that we have gone through three conference calls, and I do not think anybody has told us what their economic assumptions are. What do you expect for inflation, interest rates, and the currency for the end of next year? Maybe you have said it, and I missed it. Sorry for that. Second, in terms of liquidity, your LDR in pesos is around the 100% level and more partially because of NaranjaX. Is there an absolute level beyond which you would rather not go?

Therefore, you might be able to, you might be willing to restrict your loan growth until deposits catch up? Thank you. Hello, Carlos. How are you? In terms of macroeconomic assumptions, we have, I will tell you the last estimates from our chief economists for this year and next year. GDP growth, 4% for this year, 3.7% for next year. Inflation ending this year, 30%. Next year, inflation 18%. And FX 1410 at the end of this year and 1610 next year, end of next year. Thank you. Thank you. That's very useful. Yes. And LDR in pesos, loan-to-deposit ratio. Yeah, I mean, as you know, we're talking about our first LDR. Then we have our LCR, which is the liquidity coverage ratio. We have more than 180%, so very, very liquid there. In loan-to-deposit ratio, we are, but we are at 99-100%, but we are comfortable.

We are assuming that our deposits, peso deposit, will continue to grow. What happened also in the third quarter and in October, it's a lot of high dollarization happening in the economy because of what's happening in the election, what was expected in the election. We saw deposits in pesos to turn into dollars. Now we are starting to see some kind of reverse thing that some of the actors selling the dollars and going back to pesos because they need to operate, and they are not expecting an evaluation in the near term at least. We believe that we have other means to grow deposits or to go to the market. Really, we do not see that as a, even though we monitor that and we want to, that's why we are putting a lot of focus in deposit growth.

We expect that deposit growth could come with us, and that will help us to continue growing the peso lending. We do not see a constraint in the growth because of that so far. You do not see that as a constraint? No. Okay. In terms of the dollarization, you are completely right. There has been a dollarization both of loans and deposits. You and the other banks are mentioning demand for dollar loans. Should we expect therefore further dollarizations of the banks on the asset side? Have you started to see or not yet a reduction in demand for dollars? Have you seen actual dollar sales back to pesos? I mean, lending in dollars, yes. I mean, we see in the commercial lending high demand or higher, I would say, demand in dollar lending. That is continuing.

Mainly what we are seeing, these projects that we are talking about, we expect that to continue. Yes, we have grown a lot of our deposits in dollars starting the tax amnesty that Milei put. After that, our share in deposits, dollar deposits, is higher than our fair share. We are taking advantage of that. Of course, with the limits and kind of limits that we have to lend dollars, etc. We can also go to the market and get dollar debt, which the market is there also. We expect to continue growing dollar lending, of course, at a moderate rate considering the liquidity limits that we have internally to our dollar deposits. Dollarization, of course, the demand for dollars, I mean, from our customer base, talking about purchase of dollars after the election has gone down.

I mean, it was a very, very high level before the election. It has gone down to normal levels. In Argentina, you always have people buying dollars. That is something that can come back again if there is any noise or any political uncertainty. So far, we expect this to be quiet in the next months and not really. It is now at, I would say, first months of the year levels, and we expect this to continue at this stage. Can you give us an idea about the levels of your dollar purchases that you are seeing from your customers? I mean, other banks have told us they went from $1 million, $5 million or $6 million to $30 million or so per week. Where are you and where are you relative to, let's say, the second quarter or the first quarter?

Yeah, I mean, we used to have like $50 million per day. We are now at, I would say, $15 million, something like that. Lower levels. Lower levels, I mean, it's daily levels, but same level at the beginning of the year, I would say. That would be the level of the beginning of the year as well, the $15 million? Yeah, more or less, yeah. Thank you. You're welcome. Our next question comes from Yuri Fernandez from JP Morgan. Please, Mr. Fernandez, your microphone is open. Thank you. Hi, Gonzalo, Pablo, Chien. A quick follow-up. Most of my questions have been already asked, but just on asset quality, and there were many questions about the peak and how you are seeing. What makes you confident that first quarter will be the peak? Because we heard before, right?

I think second quarter was supposed to be the peak, then third quarter. Now we are talking about the first quarter 2026. I know it's hard, but what is the leading indicators you are looking for? Why do you think it should improve? Is asset lower yields on loans moving lower? Is the economy improving? Is, I don't know, any kind of underwriting lessons that you learned in this last year? Just trying to understand what drives the confidence for improved asset quality. Just a second one on this topic, how your expected loss model should work on this? Should we start to see lower provisions now because you are calling for improvement ahead? Or no, you still need to do some kind of incurred losses provisions? Help us to understand the difference between incurred losses and expected losses here for you. Thank you.

I mean, I would say that, of course, when you make an expectation for the future on NPLs, there are one or two things that play. One thing is what you can control and the other thing that you cannot control, which is the market and how the economy is doing for families and for people. Of course, what we always talk is about what we are doing and what we expect that will create a change. In the middle, you may have elections, you may have interest rates going up that you could not expect before. Many things living in a country, in a developing country that, I mean, one month ago was on the border of hyperinflation if the elections were with a different scenario. Now we are all again drafting that.

With a lot of volatility in the middle is that you have a lot of interest rates going out and families being affected. That's why it's not that easy to predict what's going to happen. It's our best estimate with considering what we can control. As you know, people do estimates. So what we are doing is, of course, we change the score of the customer we are lending to. Our score now is a better score. It's a higher score. We cut a lot of the lower scores that we used to have. We reduce limits in some of the lending. And we, of course, monitor the roles. And we see the roles by vintage and by harvest. And we are seeing that new origination is behaving before than the old one.

Of course, you have in the middle credit cards, which is just that it's not new origination. Credit cards, I'm talking about personal loans, the first thing. Now when you go to credit cards, it's old customers that start to behave bad. That you didn't do anything, but they just started to behave different because of adjustments they had in the family economy, etc. In that sense, we are also seeing some slight improving in personal loans. I mean, we are talking about we see personal loans improving, credit cards still having a heavy lifting. That's why we still see this going on on the third quarter, on March. If it's February or April or May, I mean, this is again, I think what Carlos was saying, you are predicting ROE, you are a magician.

We are doing an estimate today, I mean, with what we have. Of course, we cannot guarantee that the ROE will be 11. It's an estimation with the forecast we have of all banks in the world. This is the same. This is where with the tools that we have, we made a lot of changes that we expect that they are going to produce changes. Again, going to better scores, cutting limits, and monitoring that roles of the new lending is coming better than the old ones. If there is something in March or February that happens that affects families' incomes again, we cannot predict that. With the assumptions and the economy as is today, we expect this to happen. No, no, super clear. I know it's hard. No, thank you. Good examples. I was just trying to understand what has changed, right?

It was very good. We're talking also about the dynamic. Sorry, I didn't answer that part. The dynamic of the models, I mean, the point is that when the new lending, you are booking new losses or new reserves for the new lending considering the behavior of the past lending. You still won't see a lot of reduction in the, I would say, the cost of risk in the first month because even though you are originating, we are originating better quality, you still need to book reserves considering the past performance of your portfolio.

You cannot say, "Well, these guys are better, so I will book a better performance because you did not see that in your book." That is why at the beginning, you will take some time in having a reduction in the cost of risk because the new lending is also booked considering the behavior of the past lending. When you start proving that those lendings or those customers are behaving better than the old ones, you start reducing your cost of risk. That is something that is gradual. It is not that quick. That is why we see first quarter of next year still with higher provision. No, super clear, Gonzalo. Thank you for the examples and good luck. Thank you very much. Thank you. Our next question comes from Santiago Petri from Franklin Templeton. Please, Mr. Petri, your microphone is open. Hi, hi. Good afternoon. Thanks for the call.

I understand you mentioned you're expecting return on equity by the mid-teens by 2027. I would like to know what loans to GDP assumption you are assuming for this achievement. If this return on equity is the sustainable steady state that you are aiming at or you are aiming at a higher return on equity, and what will be the steady state loan-to-GDP penetration in Argentina under this assumption? What we are seeing is, I mean, loan-to-GDP today is around 10-11%, more or less. I mean, we are expecting in our projections, if everything goes right, that this can improve 2% per year. Our aim is to be a sustainable ROE between 15-20%, I would say. That's the aim. We expect, I mean, with everything going right, we have assumptions to be around 15% by the end of next year.

Starting at 15, I consider that by 2027, we could be in that range. Still, we do not know what Argentina will find by that time. If everything continues to improve, loans-to-GDP continue to grow at least 2% per year, we believe that that could be the range in 2027 and onwards, maybe 2027 still at mid-teens and 2028 already at higher things. Our aim for the longer term with a country that is already stabilized with our changes in our operating model, we are also working in changing our operating model or how to serve our customers to reduce costs and compete with the fintechs, with Mercado Pago, that we know that they have a much lower cost to serve. With that already everything implemented, our aiming is to be between 15-20, I would say. That should be after 2027. Thanks a lot.

Thanks for the call and the reasoning. Thank you very much. Okay. I think that was question answered. Question, right? Yeah. Right, Pablo. Okay. Thank you, everybody, for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Good afternoon. Bye-bye. Bye-bye. Grupo Financiero Galicia Conference is now closed. We thank you for participation and wish you a very good day.