Banco BBVA Argentina S.A. Q2 FY2025 Earnings Call

Good morning, everyone, and welcome to BBVA's Argentina Second Quarter '25 Results Conference Call. Today, we have Mr. Diego Cesarini, Head of ALM and Investor Relations, Mrs. Belen Fourcade, Investor Relations Manager, and Mrs. Carmen Arroyo, CFO, who will participate in the Q&A session. The presentation and the second quarter '25 earnings release can be found on BBVA's Investor Relations website and are also available for download in the chat. I want to emphasize that some statements made during this call may be forward-looking statements as defined by the safe harbor provision in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements come with risks and uncertainties that may lead to actual results differing materially from those projected. More information on these factors is available in the BBVA Argentina annual report on Form 20-F for the fiscal year 2024, filed with the U.S. Securities and Exchange Commission. I will now turn the call over to Mrs. Belen Fourcade. Please proceed.

Good morning, and thank you all for joining us today. The macroeconomic normalization process has continued in recent months. The sustained fiscal balance, along with a tight monetary policy and the gradual relaxation of foreign exchange restrictions, have been key factors in anchoring expectations and solidifying a significant disinflationary trend since 2024, which has continued during the first half of 2025. In this context of stabilization, despite some recent signs of a slowdown in the pace of economic recovery, GDP growth is projected to be 5.5% year-over-year in 2025 according to BBVA Research. This not only reverses the 1.7% drop in 2024 but also surpasses its previous highs reached in the past years. As a result of these improvements, our base case scenario contemplates that the disinflationary convergence will strengthen with a year-over-year inflation rate that will be close to 28% by the end of 2025. Within the framework of a new agreement with the International Monetary Fund during the second quarter of the year on April 14, 2025, the lifting of a large part of the remaining exchange controls was announced, along with the implementation of our wide-band floating exchange rate scheme. This has positively impacted our results with increased foreign currency trading activity and gains from gold and foreign currency valuation. These regulatory changes will also boost cross-border credit growth and investments in the country. During the first half of 2025, BBVA Argentina accelerated its growth in the credit segment, consistently outperforming the market. The bank's market share of total private loans rose 107 basis points from 10.54% in June of 2024 to 11.61% in June of 2025. As of March of 2025, BBVA Argentina was positioned third in the ranking of local privately owned banks in terms of consolidated private loans. As per Central Bank information, our peso loan portfolio expanded by 43% year-to-date at a pace faster than the system's 39% and the 6-month accumulated inflation level, which reached 15.1% in June of 2025. As for total private deposits as per Central Bank information, the system grew 17% in the first 6 months of 2025, while the bank grew 32%, surpassing the level of inflation in both cases. BBVA Argentina's consolidated market share of total private deposits was 9.64%, 215 basis points higher than the 7.5% of the previous year. According to the latest quarterly data available from the Central Bank, as of March 2025, BBVA Argentina remains in third place in the ranking of local privately owned banks in terms of consolidated private sector deposits. Moving to the bank's second quarter 2025 financial results, Argentina's inflation-adjusted net income in the second quarter of 2025 was ARS 59.6 billion, decreasing 31.1% quarter-over-quarter. This implies a quarterly ROE of 7.6% and a quarterly ROA of 1.2%. We are leveraged by active pricing management, careful portfolio management, and strict cost control, which has allowed us to navigate the context of higher provisions and nonperforming loans while driving activity growth. The decrease in quarterly operating results was mainly explained by lower operating income. Lower income was mainly due to: one, a drop in the line of net income from write-down of assets at amortized cost due to the voluntary exchange of bonds promoted by the government in January 2025, which reflected a positive result from the write-down of securities; and two, a deterioration in loan loss allowances. These were positively offset by better income in foreign exchange and gold gains, explained by an increase in activity after the partial lift of FX controls on April 14, 2025. Net income from the net monetary position was 30% lower quarter-over-quarter, thanks to a lower quarter inflation of 6% versus 8.6% in the first quarter of 2025. Turning to the P&L lines: net interest income was ARS 591.8 billion, increasing 3.1% quarter-over-quarter. In the second quarter of 2025, interest income increased more than interest expenses in monetary terms due to an improvement in income from loans and from CER/UVA adjustments. Expenses increased mainly due to higher deposit costs, particularly from time deposits, which constituted 73.4% of interest expenses versus 74% in the previous quarter. Net fee income as of the second quarter of 2025 totaled ARS 94.1 billion, decreasing 11.1% quarter-over-quarter. Fee income totaled ARS 176.5 billion, decreasing 7.8% quarter-over-quarter, primarily explained by credit card fees, considering a revision of provisions linked to the BBVA loyalty program in the first quarter of 2025. This was partially impacted by the extraordinary results reported in the first quarter of 2025, in the context of a program sustained under recalculation of provisions. It is important to note that the bank is actively committed to generating efficiencies within the fees framework. The growth linked to liabilities is particularly noteworthy, especially due to improvements in pricing of account maintenance and bundles. On the side of fees, this totaled ARS 82.5 billion, decreasing 3.8% quarter-over-quarter, mainly explained by lower expenses related to payroll promotions followed by lower fee expenses for new channels. During the second quarter of 2025, loan loss allowances increased 42.3%, explained by the real growth of the loan book in the quarter, which implied higher provisioning as well as the publicly known deterioration of nonperforming loans, both for BBVA and for the system, which I will comment on later. During the second quarter of 2025, total operating expenses were ARS 483.1 billion, decreasing 7.5% quarter-over-quarter, of which 29% were personnel benefit costs. Personnel benefits increased by 10.4% quarter-over-quarter but fell by 7.3% year-over-year. While wages kept pace with inflation, there was an increase in payroll as well as social security withholdings and collections and other short-term personnel benefits. Administrative expenses dropped 4.8% quarter-over-quarter. The quarterly savings are mainly due to proactive efficiency measures in armor transportation services, outsourcing administrative expenses, advertising, and commercial reports. Additionally, the decrease is also due to the lower provisions made in the first quarter of the year, primarily related to the elimination of the PAIS tax. The quarterly efficiency ratio as of the second quarter of 2025 was 56.5%, stable versus the 56.3% reported in the first quarter of 2025. Moving on to the next slide, private sector loans as of the second quarter of 2025 totaled ARS 11.3 trillion, increasing 15.7% quarter-over-quarter. Loans to the private sector in pesos increased 13.9% during the second quarter of 2025. For the quarter, real growth occurred across all lines, specifically with one, a 34.6% increase in overdrafts; followed by, two, a 26.9% increase in other loans; three, an 8.4% rise in credit cards; and four, an 11.6% increase in consumer loans. In all cases, the increase is driven by the genuine portfolio growth, leveraged by the relative stability of market interest rates during the second quarter and increased commercial efforts. For other loans, in particular, the significant progress is linked to the floor plan business, which is supporting the higher activity in the automotive sector. Loans to the private sector denominated in foreign currency increased 23.6% quarter-over-quarter. The quarterly increase is mainly explained by a 23.5% growth in financing and refinancing of exports. These loans grew in a context where foreign exchange controls were lifted and expectations of exchange rate stability became stronger, which promoted activity in foreign currency. During the quarter, the commercial portfolio grew 17.7%, and the retail portfolio increased 13.1%. The commercial portfolio represents 58.1% of the total portfolio, up from 54.1% a year ago. Argentina's consolidated market share of private sector loans reached 11.61% as of the second quarter of 2025, improving from 10.54% a year ago. Regarding asset quality, Argentina's nonperforming loan ratio on private loans reached 2.28% in June 2025, a figure that remains below the system average of 2.55% as of May 2025, the latest available data. This was due to an increase in the nonperforming retail portfolio, reflecting a deterioration in nonperforming credit card and consumer loans, which aligns with the overall systemic trend. Commercial nonperforming loans, however, showed very good performance, decreasing from 0.14% to 0.10%. While some deterioration has been observed in a scenario of significant credit expansion, primarily concentrated in the retail segment, these increases start from historically low levels. The current nonperforming loan levels continue to be below the average of the local financial system over the last 20 years. BBVA is distinguished by consistently having nonperforming loan ratios below the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. As we can see, as of the second quarter of 2025, total gross loans and other financing over the deposit ratio was 88%, above the 85% recurring in the first quarter of 2025 and above 78% in the fourth quarter of 2024. The participation of total loans over assets is 58% versus 56% in the first quarter of 2025 and 51% in the fourth quarter of 2024, evidencing a lower exposure to the public sector in line with the real growth of credit demand.

This is Carmen Arroyo. Thank you for your questions. I want to start by saying that we observe a more complex situation regarding nonperforming loans, as you are aware. However, we believe these levels are manageable, and we are comfortable maintaining our strategy for credit growth. We expect this year to maintain our guidance of around 50% growth for the bank in real terms, which we consider achievable. We will need to monitor developments over the next few months leading up to the elections, but we already think this is feasible. Regarding profitability, we anticipate our return on equity will be in the low double digits. In terms of liquidity, we feel confident about our deposit growth, and we continue to guide towards a 30% to 35% increase in deposits. Our term deposits are performing well, particularly in retail, where we hadn't seen as much growth in the first quarter. We are now focused on driving this growth, which serves as a positive factor in our profit and loss. We are also comfortable with our capital ratio, which we expect to be around 17% by the end of the year, down from 18.4%. This change is due to the dividend payment and the expansion of our credit activities. We believe we will conclude the year around these levels. I hope this addresses your questions. That's correct, Brian. We are currently monitoring the system's growth potential. We are committed to our strategy of gaining market share and are confident in it. The key question is how much the system will grow. We have the necessary liquidity, capital, and strategy, and if there is demand, we will be ready to respond. Okay, Pedro. Thank you for your questions. Related to the first one, yes, so it's true that the whole system is experiencing this change. The strategy remains the same, focusing on both retail and commercial. But we are seeing an acceleration in consumer loans due to higher nonperforming loans across the system. We think we will grow less in this portfolio but the growth in credit cards is still significant. So maybe less consumer loans and a bit more credit cards. And of course, SMEs and commercial customers are the focus of maintaining growth. Volatility in interest rates and higher levels of caution are causing short-term credit to slow, but this should be a temporary situation and we hope to see good dynamics in terms of commercial and CRE credits again in a couple of months. So you might see a change in the mix of growth, but it shouldn't be drastically different. In terms of the path to go from ROEs this semester compared to our guidance, we are not that far if you see the accumulated ROE for the semester. Considering higher nonperforming loans, we see good performance in fees and commissions and in expenses, which I would highlight. The NIM is stable considering the volatility I mentioned. There might be some impacts from quicker deposit repricing than credit ones, but our balance sheet is well matched between short-term liabilities and credits. Therefore, you shouldn't consider significant impacts.

Mario, this is Diego Cesarini. How are you? Thanks for the question. I would say that the government is worried about inflation. We all know that it's a main priority for them to bring it down as soon as possible. In the previous moments before the election, I think that it's crucial for them to keep foreign exchange stable in order not to affect inflation. They have been trying to do this by increasing yields and interest rates to keep FX calm. It's not that we are asking for more yield in every auction; it's just that once they raised the levels of the reserve requirements we must comply with, we need to collect part of our bonds to comply. They are managing the system with very low levels of short-term liquidity while banks have significant excess liquidity. However, we are working without adequate short-term instruments, posing technical challenges in daily operations. But as Carmen said, this is a provisional situation, and we expect a return to normalcy in a couple of months. Regarding loan demand, yes, high interest rates are affecting demand across both segments, particularly on the commercial side. Nonetheless, we are not far from reaching our annual target of 50% loan growth, as mentioned before, and we anticipate that this is a temporary situation.

Yes, so if you look at the year-over-year growth, you can see a 20% increase in fees and commissions. However, there were nonrecurring impacts in the first quarter that account for the drop in the second quarter. The key point is to consider not just last quarter but our performance by year-end. We are actively working on enhancing fees and commissions — this is why I stress the importance of this point, since there’s a noted gap compared to our peers in the banks.

A follow-up here on Mario's question. So I think I understood the effect on credit demand. But I just wanted to understand if this is net positive or negative for the treasury results? I know it's short term, but it should have an impact for the full quarter, perhaps more than expected. So I wanted to check if this is net positive or negative regarding what we had possibly 3 months ago.

In terms of short-term results, I would say it’s neutral to slightly negative because our short-term liabilities, including deposits and time deposits, are similar in volume to our assets composed of loans and bonds. Both sides are repricing, though liabilities tend to reprice slightly quicker. We have bonds in our portfolio that are primarily short term and repriced quickly, so the impact will be very short and should stabilize by September.

If you could comment on how relevant FX trading and dollar-related transactions could become for BBVA's earnings going forward. Should we view this as a material or recurring revenue source or more of an opportunistic line that may fluctuate with market conditions?

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

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