Grupo Supervielle - Earnings Call - Q1 2025
May 28, 2025
Transcript
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Good morning, everyone, and welcome to Grupo Supervielle's first quarter earnings call. I'm Ana Bartesaghi, Treasurer and IRO. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. To ask questions during the Q&A session, ensure your first and last name appear on the Zoom platform. Questions can be asked by voice or through the Q&A box. Speaking today will be Patricio Supervielle, our Chairman and CEO, and Mariano Biglia, our CFO. Gustavo Paco Manriquez, Banco Supervielle CEO, and Diego Pizzulli, CEO of invertironline, will also be available during the Q&A session. Good morning, everyone. Before we begin, I'd like to remind you that today's call may include forward-looking statements, which are based on management's current expectations and beliefs and subject to risks and uncertainties. For more details, refer to the forward-looking statement section in our earnings release and recent SEC filings.
Patricio, please go ahead.
Patricio Supervielle (Chairman and CEO)
Thank you, Ana. Good morning, everyone, and thank you for joining us today. In first quarter 2025, we introduced a cluster-based strategy to strengthen the value proposition across both retail and commercial customers to gain principality with our clients and attract new ones. Loan growth increased modestly, sequentially, as we experienced some short-term softness in loan demand, particularly in March. This was largely due to external factors, including limited peso liquidity, currency volatility, and caution ahead of the IMF Milestone Agreement. Reflecting our strategic focus, retail continued to lead, now comprising over half of our total loan portfolio, up from just a third over a year ago, underscoring our emphasis on high-margin, more resilient segments. On the funding side, deposits increased high single digits sequentially.
As equality remained solid, our NPL ratio rose this quarter and is aligned with industry levels, driven by the rapid expansion of our retail loan book and remains below historical levels and well within risk-adjusted pricing thresholds. Customer-related net financial income increased in the high teens, highlighting the strength of our core franchise, while market volatility weighed on invested portfolio name. On the cost side, we maintained discipline, strongly reducing expenses and demonstrating our ability to drive operational efficiency. In an environment with many moving parts, we delivered a mid-single-digit ROE in real terms. Mariano will discuss our financial performance in more detail shortly. Argentina continued to its agenda of intense deregulation measures. Inflation continues to decelerate while maintaining fiscal surplus. Foreign exchange restrictions were lifted for individuals and continue to be gradually deregulated for corporations.
The strong show for the government in the recent CABA legislative elections demonstrates political support for the Milei government and is contributing to improve consumer confidence. Turning to slide four, as shared with during our fourth quarter call, we finalized our strategic roadmap during this first quarter and began executing initiatives to position Supervielle as a differentiated player, blending the strength of traditional banking with the agility of fintechs. At the heart of our strategy is meeting evolving customer expectations through simplicity, personalization, and convenience built on a resilient financial platform. We've already made progress on several high-impact initiatives. In April, we launched Argentina's first remunerated account, allowing payroll and SME clients to earn daily interest in peso and U.S. dollars. This project enhanced the client experience while deepening our funding base and reinforcing our role as a primary bank. We're encouraged by the early response of our clients.
Early this month, we launched Tienda Supervielle in the Mercado Libre platform, a bank novelty, fully integrated into our mobile app. This marks a new step in our vision of our super app, providing customers a seamless platform to manage their financing, shop, and invest. Our new AI-powered customer interaction via WhatsApp enables real-time intuitive support while retaining the option to access human assistance, embodying our tech and touch approach. Lastly, the bank launched its investment platform, enabling its customers to conduct investment transactions powered by invertironline, delivering a frictionless experience and an avenue for higher fee growth. This initiative reinforced our competitive position, and we are well positioned to support our clients and deliver long-term value for shareholders as Argentina enters a new phase of growth.
With that, I'll turn the call over to Mariano Biglia, who will walk you through our financial performance and perspectives for the year.
Mariano Biglia (CFO)
Thank you, Patricio, and good day to all. Starting with slide five, total loans were up 3% sequentially and doubled year over year in real terms. Growth this quarter was almost entirely driven by retail lending, which rose 196% year on year and now represents nearly 52% of our total loan portfolio, up from 36% a year ago and 48% at year end. This intentional shift toward higher-margin retail products continues to support profitability and deepen customer engagement. Commercial lending was up 58% year on year but contracted slightly sequentially, reflecting softer demand from corporate clients amid tighter peso liquidity and cautious macro backdrop. That said, our market share remained stable, and we are well positioned to reaccelerate in commercial lending as demand recovers.
Turning to page six, within retail loans, personal loans stood out, up 29% quarter on quarter and more than quadrupling versus the first quarter of last year. Car loans followed, rising 12% sequentially and growing nearly sixfold year on year. In turn, credit cards rose 5% quarter on quarter and nearly doubled year on year. On the commercial side, loans declined 4% sequentially, mainly reflecting a declining dollar-denominated loan demand in a context of strong volatility in anticipation of the lifting of FX contracts. Moving on to page seven, as anticipated, our NPL ratio reached 2% this quarter, primarily reflecting rapid expansion in retail loans. While this marks a normalization from historically low levels, it remains in line with industry benchmarks and consistent with our risk pricing. The coverage ratio at 153% continues to reflect a prudent buffer.
By segment, delinquency in the retail portfolio increased to 2.8%, while SME and corporate loans stood at 1.3%. Importantly, all levels remain within our expected range. Cost of risk rose to 5%, reflecting higher provisions aligned with retail loan growth in line with our expected credit loss models. As these loans gain share, we are actively refining our origination and collection models to sustain asset quality and protect returns. In our retail portfolio, we prioritize credit quality and long-term relationship value. Currently, 53% of loans to individuals are tied to payroll and pension accounts, segments associated with lower risk and stronger retention. Notably, 88% of personal loans and over half of credit card volume is sourced from these clients, underscoring the strength of this channel. Additionally, 57% of retail loans extended to the open market are fully collateralized, mainly through car loans, supporting disciplined growth and enhanced credit quality.
With respect to commercial loans, 27% of this book is secured by tangible guarantees, and three-quarters of non-performing exposures are collateralized. Our exposure remains well diversified, with a top 10 corporate clients representing just 8% of total loans. Moving to slide seven, client-related net financial income rose 17% sequentially, reflecting the momentum in retail lending. Loan portfolio NIM improved 60 basis points to 21.3% in the period, also benefiting from the growing share of higher yield products and a lower funding cost base. In contrast, a correction in bond valuations triggered by renewed FX volatility, together with a more restrictive monetary policy, resulted in a sharp decline in the investment portfolio net financial income. As a result, total net financial income declined 12% quarter over quarter. These trends reflect the resilience of our client franchise and validate our strategic shift towards diversified sources of income. Now, please turn to slide 10.
In the constants of a transition year, we're slightly adjusting our loan, NPL, and cost of risk targets for the full year. Starting with loans, dollar-denominated lending declined nearly 10% sequentially, while peso loans rose 6%, broadly in line with industry trends. For the full year, we now expect to deliver real loan growth between 50%-60%, contingent on monetary policy. This compares to our prior perspective of over 60% growth. Retail loans are expected to remain above 50% of the portfolio. In terms of funding, peso deposits were up 12% sequentially, while dollar-denominated deposits were practically flat. We continue to expect 40% growth in total deposits for the full year, supported by a rising share of dollar balances and strong traction in remunerated accounts, while peso deposits remain sensitive to monetary policy.
On asset quality, we now expect the NPL ratio to range between 2.2%-2.5% at year end, up from our original expectation of 2% and 2.2%, reflecting a higher wave of retail loans. Net cost of risk expectations now range between 4%-4.5% compared to our prior range of 3.7%-4% on higher share of retail loans. We also expect NIM to continue to normalize in the 18%-20% range as inflation continues to ease, leverage gradually increases, and the mix shifts toward dollar-denominated loans and deposits. Turning to slide 11, we continue to expect fee income to grow by at least 10% in real terms in 2025. As discussed in our prior call, we anticipate fee income to be driven by higher net bank and brokerage fees, along with higher penetration of investment and insurance products across our client base.
On the cost side, operating expenses were down 12% sequentially and 17% year on year, reflecting our focus on driving real-term reductions through workforce optimization and other initiatives. We expect this to further strengthen operating leverage as we continue to cut costs and drive revenue growth. As a result, we continue to expect ROE to improve progressively, reaching between 12% and 15% for the year, reflecting margin stabilization, stronger fee contribution, and the benefits of structural efficiencies. We also maintain our year-end CET1 ratio expectations of 12%-13%, factoring in loan growth and regulatory adjustments. In sum, we remain focused on disciplined execution, balancing growth, efficiency, and capital preservation. We are closely monitoring the macro and regulatory landscape and are confident in our ability to navigate the evolving context and these emerging opportunities. Finally, additional details on our quarterly performance are available in the appendix of our earnings presentation.
With that.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Mariano. At this time, we will be conducting the question and answer session. As a reminder, to ask a question, you need to be connected to a Zoom platform. To ask a question, please press the raise your hand button and press it again to withdraw your question. You can also send your questions in written form via the Q&A. We will ask you to limit yourself to one question and a follow-up, and then you can raise your hand again in another round. One moment while we poll for questions. The first question comes from Ernesto Gabilondo with Bank of America. Hello, good morning, Ernesto. Please go ahead.
Ernesto Gabilondo (Analyst)
Thank you, Ana. Hi, good morning, Patricio, Paco, Mariano, and all your team. My question will be on asset quality. We noted the NPL ratio normalized to 2%, but at the same time, we also saw an important increase in provision charges and cost of risk. Can you elaborate if there is any trouble corporate and in which sector, for example, any color in the agriculture sector? How should we think about the evolution of the cost of risk throughout the year, especially as it was, I think, 5.2% in the first quarter, but you are expecting the guidance for the full year between 4%-4.5%? Thank you.
Patricio Supervielle (Chairman and CEO)
Thank you, Ernesto, for your question. First of all, I have to say that what we are seeing is a normalization of the credit in the market. What you see, the NPLs are coming to, let's say, a more normal level from very low levels previously. We are very comfortable with our risk controls and individuals and enterprises. They are generally still very low indebted in Argentina. This is a normalization. This increase of NPL that you saw in the quarter relates to the growth of the loan portfolio, particularly on the retail sector. Please, Mariano, do you want to answer more specifically?
Mariano Biglia (CFO)
Sure. Thank you, Ernesto, for your question. Regarding the NPL, as Patricio said, we are seeing a normalization. Also, our portfolio is balancing more towards the retail segment. That is why we are also seeing an increase in NPLs and an increase in the cost of risk. Regarding our guidance for the full year, we are slightly increasing the guidance for NPL. We had the guidance in the range of 2%-2.2%. Now we are in the range of 2.2%-2.5%. That is basically because of the composition of the portfolio leaning more towards retail. That is also what will make the cost of risk also to range more between 4%-4.5% instead of 3.7%-4% we had previously. We are not seeing any problems on the agricultural sector or the corporate side.
If you see the evolution of the NPL on the corporate, it's quite stable compared to the previous quarter. We know we had news from some corporates in the last months of last year, but we are seeing good behavior on that portfolio.
Gustavo Paco Manriquez (CEO)
Ernesto, sorry, in the page five, you can see that one year ago, we have 64% for commercial loans and 36% for retail loans. Now this quarter, we have 52% for individual loans or personal loans and 48% for commercial loans. That different composition is explaining the figures that you are seeing today.
Patricio Supervielle (Chairman and CEO)
Sorry, Ernesto, also to complement, when you look, for instance, for unsecured loans for individuals in terms of personal loans, the bulk is on payroll accounts or pensioners. We are very confident on that. Also, if it is an open market, the bulk of the loans is car loans, which are basically secured by the loan itself, by the car itself. We are pretty comfortable on that also. Thank you.
Ernesto Gabilondo (Analyst)
Perfect. Thank you. Just to follow up in terms of cost of risk, because I believe it was around 5% the cost of risk in the first quarter, but you are guiding for the full year between 4%-4.5%. The worst of the cost of risk already happened in the first quarter, and it should be improving throughout the rest of the year. As you were saying, the bulk is in payroll loans, pensioners, and in auto loans. Is that what we should expect?
Mariano Biglia (CFO)
Yes, correct. The net cost of risk was 4.8%. It is slightly above the range for the full year. We should see the cost of risk improving in following quarters and having the full year within that range.
Gustavo Paco Manriquez (CEO)
We are working on improving the cost of risk going forward. Yes, we are keeping the 4.5% of cost of risk. We are working on new measures in order to keep the numbers in that level.
Ernesto Gabilondo (Analyst)
Perfect. Thank you very much.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Ernesto. Our next question comes from Brian Flores with Citi. Hello, good morning, Brian. Please go ahead.
Brian Flores (Analyst)
Hi, team. Good morning. I have a question on capital because you might have the lowest position among incumbents. In the last 12 months, you have consumed around 10 percentage points of tier one, which comes to around 250 basis points per quarter. You are already at 250; you are already, I mean, at 15, which means that to go to the 12%-13% range you were saying by the end of the year, you will need to be consuming significantly less than you had. A question on your risk appetite. Should we continue seeing the aggressive growth we have seen, and should we expect you to defend the market share you have gained? I know, Patricio, in the report, you mentioned the 40 basis points market share gain you had in the last months.
Should we continue to see you, I would say, aggressively defending or pursuing more market share, or should we see a bit more, I would say, caution on origination? If you could expand on which segments, that also would be great. Thank you.
Patricio Supervielle (Chairman and CEO)
First of all, what happened is that in the fourth quarter of last year, we anticipated market growth that maybe there was a catch-up in the first quarter of this year from the rest of the banks. This was an anticipation. Our risk appetite has not changed. It is, as I said previously, we are starting from very low levels of debts for corporations and individuals. We believe that is a great opportunity for the financial system looking forward with inflation continuing to go down and also expected at some time also nominal rates to go down. That would be very positive for the credit side. Regarding the portfolio mix, in order to sustain what you mentioned, to sustain capital levels, it is essential to also gradually change the mix of the portfolio from corporates to individuals.
Paco recently just mentioned the change that occurred from the beginning of last year till now in terms of giving more weight for retail loans. This should continue gradually to increase the ratio of retail loans in order to defend the return on equity. Additionally, Paco has implemented stringent measures in terms of cost controls that you can continue to see in the first quarter, both in personal and general expenses, and also being more, let's say, very high discipline also on the investment side for technology, more focus. Finally, I believe that there is a challenge for the entire financial industry, which is expanding the leverage of the financial industry. Because the leverage is very low, we will be looking forward to expand our leverage in order to sustain the return on equity.
I hope I have given you the answer to your question. I don't know if you want to answer.
Brian Flores (Analyst)
No, great. Just to summarize, we understand based on your presentation, as you mentioned, NIMs should continue coming down. Asset quality, perhaps a bit more pressure, but within control. Basically, what you're saying is perhaps a lower risk density helping the ratio, but also more leverage also helping achieving better levels of ROE. Just to summarize, this is a correct picture in 2025?
Patricio Supervielle (Chairman and CEO)
Yes, I think it is correct.
Mariano Biglia (CFO)
Yes, that's correct, Brian. The range of tier one capital ratio that we gave is consistent with the rest of the projections of loan growth, basically, and the other measures.
Brian Flores (Analyst)
Thank you.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Brian.
Patricio Supervielle (Chairman and CEO)
Thank you, Brian.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
We have another question. It comes now from Carlos Gomez-Lopez from HSBC. Hello, good morning, Carlos. Thank you for asking questions. Please go ahead.
Carlos Gomez-Lopez (Analyst)
Thank you. Good morning. Thank you for the very detailed presentation of your results. I had a question on the deposit side. You mentioned that you have a 12% increase quarter on quarter, but when I look at page 17 of your presentation, I see that that is mostly on the wholesale side. Now, you expect a 40% increase in deposits in real terms in the year. What makes you think that you can achieve that rate of growth, and what alternatives for funding do you think you can count on? Thank you.
Patricio Supervielle (Chairman and CEO)
Let me give you briefly a general answer, then Paco will complement. Basically, there has been, if you put context to what happened in the last few years in the financial industry in Argentina, there was an issue of disintermediation, particularly because we had repressive financial, let's say, measures from the central bank that hindered taking deposits in the banks. What happened is a large chunk of the savings of the transactional funding, sorry, of enterprises and individuals, they went into money market accounts. These money market accounts finally ended, and they continue to end, or they come to the banks as remunerated accounts, which, according to Basel rules, this can only fund securities. The challenge is to increase CASA deposits. This is exactly what we are tackling.
Banco Supervielle is, I think, the first bank really to take seriously this issue and tackling the issue of gaining principality and making sure that the individuals and the enterprises, they start depositing in our bank. I would like to, if you can, explain what we did.
Gustavo Paco Manriquez (CEO)
Yes. Basically, we launched early April a Cuenta Remunerada. Basically, it's a remunerated account for the payroll customer. Also, as you saw in the presentation, we have a huge focus on the payroll accounts customers sector, basically. And we have excellent results in order to have we see the balances of those customers. Basically, they are more stable and also increase the balances against the previous months. We launched, as Patricio mentioned, we launched a very disruptive and different product for the market compared to other ones, basically in order to compete directly with the fintech. We have excellent results as one month that when we launched. I think it's a strategic response for the challenge that we have for the year, for the whole year, in order to reach the goals that we defined.
I feel confident about that because we have a very huge and very hard strategic plan in place.
Patricio Supervielle (Chairman and CEO)
I might complement the challenge and the goal that Paco has set for the bank is to pay the cost of these remunerated accounts with reduction of expenses. This is pure value creation for the bank. In addition, let me tell you that if you look at international experiences, there has been already other plays like this in the market. For instance, Cuenta NARANJA of ING Direct in Spain in 1999 was very successful. You also have another example in Chile now in the last four years. Banco Consorcio is another successful example of what we are trying to do. We are very confident on that.
Carlos Gomez-Lopez (Analyst)
Excellent. Can you tell us how much you are paying for the remunerated account? Can you give us the starting point and how many salary accounts you have now and what would be a good outcome for you by the end of the year?
Gustavo Paco Manriquez (CEO)
We are paying 32% annually in interest rate. We have half as today, half of our customer base are in this new product, Cuenta Remunerada. We are attracting the half of the other part. We are launching through our sales force and through all the branches. We are selling the new product for the customers and also for the SME segment. Also, because we do not sell, we launch also remunerated account for the SME segment, not only for the payroll services, also with the SME. We launched this Cuenta Remunerada for the whole ecosystem, for the company and for the employees.
Basically, we have half of the customers accept the Cuenta Remunerada, and we are looking for another 50%. Also, we launched a very intensive incentive for all our branches and sales force in order to sell this product for the open market in Argentina.
Carlos Gomez-Lopez (Analyst)
One final clarification. When you say that half have accepted, these are clients that before did not have a remunerated account, and therefore they will be pure CASA. Now they keep the account, but now you are paying 32% on it, right? I mean, the initial impact should be higher interest expense. Should I understand that that way?
Patricio Supervielle (Chairman and CEO)
It's a higher interest expense, but at the same time, it's a high interest, but at the same time, as we said, we will compensate this with cost reduction. There was another factor that I tried to explain before is that if you see the behavior of a typical individual, what they do with the transactional monies is they invest in money markets. This is not a CASA deposit because these money markets, as I said, they come as remunerated accounts, and it's not CASA deposit. What we are trying is to change the behavior. The money was getting out of the banks, the whole financial system, and going to money market accounts, to money market funds. This is a structural play. We believe, do you understand?
Basically, what we are increasing balances, not only paying more, of course, of the people who are staying with us, but also we are increasing the balances of our own clients because we are changing their behavior. I hope that's clear.
Carlos Gomez-Lopez (Analyst)
No, the strategy is clear. Yeah.
Gustavo Paco Manriquez (CEO)
Carlos, to be clear, we don't expect or we don't have or will have more cost or financial cost for this initiative. We will cover those additional costs with additional expense cuts.
Carlos Gomez-Lopez (Analyst)
Very clear. Thank you.
Mariano Biglia (CFO)
Yes. It is also important to highlight, Carlos, that for individuals, we pay on their balances on savings accounts for payroll customers up to ARS 1 million of balance, which is very competitive compared with banks that do not pay anything and also with fintechs that also some of them have that limit. That is why also the cost is also contained.
Gustavo Paco Manriquez (CEO)
Yeah, that's a very good point because if the customer remains more balances, we earn money on that part of the balance.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
For SMEs, it's not that way.
Patricio Supervielle (Chairman and CEO)
No. So there's a ceiling, as mentioned, Mariano told, there's a ceiling on what we remunerate, ARS 1 million, basically.
Gustavo Paco Manriquez (CEO)
No, no, we can send this scheme if.
Patricio Supervielle (Chairman and CEO)
Above ARS 1 million, we do not remunerate. This is for the case of individuals. In the case of corporations, of SMEs, it's different. It's basically what we, before remunerating, they need to have a balance up to a certain amount of.
Gustavo Paco Manriquez (CEO)
ARS 25 million.
Patricio Supervielle (Chairman and CEO)
25 million with no remuneration. Above that, we remunerate. So it's a different strategy.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Rate is 18.
Gustavo Paco Manriquez (CEO)
18.
It's a different survey.
Patricio Supervielle (Chairman and CEO)
The rate is 18%. Yes, it's a different rate.
Carlos Gomez-Lopez (Analyst)
Very clear. Thank you.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Carlos. I think we have a couple of questions in the Q&A box. One comes from Matías Cattaruzzi with Adcap Securities. We have two questions. Maybe we go with the two questions at the same time. Net interest margin dropped sharply to 19.2% from 61.8% in first Q 2024 and 24.9% in fourth Q 2024. What were the main drivers of this compression? Do you expect a recovery in NIMs going forward? It is mostly coming from the NIM compression. Net income, he says, fell 74% Q on Q and 89% year on year with raw return on equity at 3.5%. What are management's updated expectations for full year return on equity?
Patricio Supervielle (Chairman and CEO)
I would like Mariano to answer this question, but first, I'd like to say that in the first quarter, what happened also or what affected the net interest margins were deterioration of the prices of the securities, government securities. This has to do with, as you know, there were uncertainties during particularly March and April also related to the creation of reserves and the expectation of an IMF agreement. This affected the prices, and this affected what you see there. Afterwards, there was a change, but this is not, of course, reflected in the first Q. It was a positive change. Please, you want to complement?
Mariano Biglia (CFO)
Sure, Patricio. When you compare to first Q 2024, also if you compare quarter on quarter, the main driver is the lower NIM on the investment portfolio. First Q 2024 was completely extraordinary. When you see a NIM of more than 60%, you know it's not sustainable. In fact, we saw that decrease in quarter over quarter during the last year where we have extraordinary results, mainly from investment portfolio, but also in an environment of much higher interest rates and much higher inflation. When you compare it quarter on quarter, although inflation was similar, if you see the chart we showed on page nine, the decrease in NIM is only the investment portfolio. That is related mainly to the volatility that we saw in the first quarter 2025 with low results from the treasury positions.
The loan portfolio NIM remained stable, and in fact, it increased slightly. This also explains why we are migrating, and we started doing that since a year ago, migrating the asset compositions from treasury securities or central bank securities to loans. Those are the main drivers.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
I think we have another question from the audience. How do you see the impact of the recent government measures to allow non-declared dollars to be used in the economy?
Patricio Supervielle (Chairman and CEO)
I think it's a, well, yet we need to see it because there are certain details, particularly on the fiscal, certain aspects of what the government intends to do that needs to pass through Congress because it implies taxes, tax regulation. I mean, I think it's positive in the sense that there will be want to put incentives on consumption and incentives of usages of dollars that today individuals they have in safe deposits. These are measures to favor, let's say, the middle-income segment of the country. Of course, I think it is very positive. At the same time, it is possible that there will be changes in the regulations of the central bank in terms of, as you know, probably the money that is not given in dollar loans to corporations basically is deposited at the central bank with no interest.
I believe that there will be a change on that side. That change, in order to adapt it more to international levels and therefore provide a higher or better value proposition for savings in dollars. These measures that you mentioned will probably complement it. I think I expect they will probably complement it also with a change in regulation and by remunerating our deposit at the central bank somehow. This is my expectation.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
We have another question from Brian Flores. Brian, please go ahead.
Brian Flores (Analyst)
Hi, team. Thank you for the follow-up. Just a quick question. If you could remind us a bit on the density of risk weights, and particularly, I think Mariano made a very interesting comment. Of course, and I think the system is shifting from public securities, which we understand have a risk weight of zero, to in your case, a bit more exposure on the retail side. Just can you remind us of the ranges of risk density? I think if I'm not mistaken, it's anywhere between 50-150. But then on the retail side, wherever you are focusing on, maybe with guarantees, this could be lower. Just to understand a bit more on the technical side. Thank you.
Mariano Biglia (CFO)
Yeah. Basically, treasury securities, most of treasuries, they do not have capital requirements or it is very low. It is more related to market risk. On those treasuries on the investment portfolio, they do have credit risk-weighted assets. Capital requirements, it is not completely zero. Of course, as we migrate to the loan portfolio, there are higher capital requirements because risk-weighted assets increase. Also, when you increase the leverage because there you are directly increasing assets, not only changing the composition. The density, the normal rule is 100%. There are some exceptions or waivers for certain loans, mainly to individuals, which could be lowered to 75%. For instance, in certain mortgage loans or certain credits for consumption, they can go to 75%. To 150% is more related with non-performing loans, with certain unsecured non-performing loans. That is not very material in the balance sheet.
That's at least a very brief summary. I don't know if I answered your question.
Brian Flores (Analyst)
Yeah, as you did, Mariano. Thank you. Very helpful.
Mariano Biglia (CFO)
Thank you.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Brian. We have now a second question from Carlos Gomez-Lopez with HSBC. Carlos, you can answer now.
Carlos Gomez-Lopez (Analyst)
Yes, indeed.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
No answer.
Carlos Gomez-Lopez (Analyst)
Thank you so much. Just to follow up on the capital question, there was a change in regulation. You referred to it in your presentation. I think it's 1.4%. But it's not clear to me if that's a reduction in your capital ratio because of the change in regulation or an increase because in some of the banks, I had seen that the impact was favorable, not disfavorable. If you could clarify what the change in regulation is, how much it affects you. Going back to the target, 12%-13% by the end of the year, I mean, obviously, you continue to grow very fast. What is the minimum that you would consider acceptable going into the following year? Would it be reasonable to expect that at some point, you may tap the market for more equity if growth continues to be favorable?
Patricio Supervielle (Chairman and CEO)
Okay. The last part of the question, we are comfortable with the capital levels. Of course, if there is a huge, if we continue to see a huge increase in demand of loans for 2026 and the market is there, it is possible that we may tap the market for capital. We are looking into this, but it is not in our plans as of today. Do you want to complement on answering this?
Mariano Biglia (CFO)
Yes, sure. Carlos, regarding the first part of your question, it's correct. As we said in the presentation, the changes in regulation, mainly for operational risk, because there were also changes in capital for credit risk, but the most important for us is the one of operational risk. That made the tier one ratio decrease by 1.4%. And that is related to an increase in the risk-weighted assets. It's not a higher deduction or less capital, but it's an increase in the risk-weighted assets because it increases the capital requirements for operational risk.
Carlos Gomez-Lopez (Analyst)
Is that permanent?
Mariano Biglia (CFO)
The change is permanent, although we are having some discussions with the central bank because it affected in a more punitive way the medium-sized entities, I would say. There is a waiver for the smallest one. The entities with systemic risk, they can adopt Basel III. The most punitive is in the middle where we are. We are expecting the central bank to review that and allow us to adopt complete Basel III. If that does not change, it will be permanent, but it should decrease over time because what the regulation changed is that we have to adjust for inflation all the past revenues, which are the base for the calculation of the operational risk. If you go back to years with very high inflation, revenues are very high because they need to compensate for inflation.
The operational risk-weighted assets become very important in the capital requirements. That should decrease over time because inflation decreases and revenues decrease.
Carlos Gomez-Lopez (Analyst)
Very well. No, that's very clear. Again, I know you are comfortable today, but what is the level at which you are not comfortable? The 12%, 11%, 10%? What is the absolute minimum that you would like to run the bank by?
Mariano Biglia (CFO)
For us, we feel comfortable with an 8%-11% tier one ratio. On top of that, as we always say, we can add tier two, which right now we do not have as we did not need it in the past. In the last years, we did not have any tier two. All our capital is tier one. We could add tier two if there is the opportunity. We would feel comfortable with 11% or more. In fact, it would be an efficient use of capital.
Carlos Gomez-Lopez (Analyst)
So again, it's 11% tier one or 11% total that you are targeting?
Mariano Biglia (CFO)
11% tier one.
Carlos Gomez-Lopez (Analyst)
11% tier one. Okay.
Mariano Biglia (CFO)
Yes. Always remember that the minimum capital requirement is 8% and 10.5% if we want to pay dividends, although we are not paying dividends from the bank. We just receive dividends from the insurance and the asset manager subsidiary.
Carlos Gomez-Lopez (Analyst)
Very clear. Thank you.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Thank you, Carlos, and thank you all. We have reached the end of today's Q&A session. I'm sorry. I see there is a new question in the Q&A box. I'm Ignacio Neuhaus. I'm sorry, from IMBERTIN and MOLSA. Thank you for taking my question. The question is regarding the NIM of 18%-20% estimated for 2025. Could you break down that in terms of rates on assets and liabilities? What levels of rates are you estimating on assets and the funding? Thanks so much.
Mariano Biglia (CFO)
Let me tell you about the reference interest rate. From there, it is a starting point for pricing assets, which, of course, are very different regarding the segment and the product. We see the reference interest rate to stay stable in the next few months and then to decrease. As inflation decreases, I think the interest rates will naturally decrease. Particularly in the lifting of capital controls, we think we will see positive real interest rates. The path that we see for inflation and interest rate is a decrease in inflation and a decrease in interest rate a few months from now, not immediately. That will lead to positive interest rates that will be translated, of course, to both loans and time deposits. From that is that we will price our assets and liabilities.
Ana Bartesaghi (Treasurer and Investor Relations Officer)
Okay. Now, yes, we have reached the end of today's Q&A session and earnings call. Thank you for joining us today. We appreciate your interest in the company, and we look forward to meeting more of you over the incoming weeks and months and providing financial and business updates next quarter. We remain available to answer any questions that you may have. Have a good day.