Banco BBVA Argentina S.A. Q3 FY2025 Earnings Call

Good morning, everyone, and welcome to BBVA Argentina's Third Quarter 2025 Results Conference Call. Today, we have with us Mr. Diego Cesarini, Head of Asset and Liability Management and Investor Relations; Mrs. Belen Fourcade, Investor Relations Manager; and Mrs. Carmen Arroyo, CFO, who will be available for the Q&A session. This presentation and the third quarter 2025 earnings release are available on BBVA's Investor Relations website, ir.bbva.com.ar, and can also be downloaded from the chat. First, I want to mention that some statements made during this conference call may be forward-looking within the safe harbor provisions of Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to various risks and uncertainties that could lead to results differing significantly from those projected. More information regarding these factors is found in BBVA Argentina's annual report on Form 20-F for the fiscal year 2024, which has been filed with the U.S. Securities and Exchange Commission. I will now turn the call over to Mrs. Belen Fourcade. Please go ahead.

Good morning, and thank you for joining us today. In the third quarter of 2025, BBVA Argentina continued to execute its growth strategy, showcasing the robustness of its fundamentals and management effectiveness. We prioritized operational efficiency through careful fee administration and strict expense control, which enabled us to navigate a volatile environment with doubled interest rate levels. The quarter was characterized by significant political uncertainty, resulting in notable fluctuations in financial variables. The Central Bank adopted a more restrictive monetary policy, increasing reserve requirements and introducing a new daily compliance framework that led to a sharp rise in interest rates and their volatility. The electoral outcome in Buenos Aires at the beginning of September further clouded the outlook for the government's economic policies. Deposit rates rose sharply from around 30% at the start of July, peaking at 70% in September. Additionally, there was a marked increase in demand for exchange rate hedging, leading to some dollarization of deposits, while loan growth moderated. Yet, credit to the private sector increased by 7% in real terms during the quarter. Following the national elections in October, which favored the ruling party, the context shifted, although the financial system still felt the effects of the quarter's events. High interest rates contributed to the worsening delinquency in the system and negatively impacted intermediation margins, as liabilities were renegotiated at a faster pace than assets, despite the relatively short duration of the latter. In this challenging environment, we maintained our focus on active pricing, careful portfolio management, and strict expense control, enabling us to manage increased provisions and delinquency while still fostering activity growth. The negative margin impact was partially offset by a high proportion of floating rate sovereign debt in our securities portfolio. Total loans to the private sector rose by 6.7%, and our consolidated market share reached 11.39%. We also saw a real-term increase of 10.2% in deposits, which increased our market share by 44 basis points, reaching 10.09% for the first time in double digits. Regarding asset quality, our nonperforming loan ratio for private loans stood at 3.28% in September 2025, remaining below the system average. BBVA has consistently demonstrated delinquency ratios below the sector average, reflecting our sound credit risk management and cautious portfolio origination approach. Our liquidity ratio remained comfortable, ending the quarter at 44.3% of deposits. The capital ratio was at 16.7%, down 170 basis points from the previous quarter, primarily due to the temporary effects of sovereign debt valuation, yet still at adequate levels to support our growth strategy. Moving on to the financial results for the third quarter of 2025, BBVA Argentina's inflation-adjusted net income was ARS 38.1 billion, a decrease of 39.7% from the previous quarter, with a quarterly return on equity of 4.7% and return on assets of 0.7%. The decline in quarterly operating performance was primarily due to lower operating income, attributed to: a deterioration in loan loss allowances, reduced net interest income, and a decrease in net income from the fair value measurement of financial instruments. These were partially offset by significant improvements in net fee income and operating expenses. The quarter was marked by rising average interest rates amid volatility and regulatory changes, followed by a clearance of uncertainties post-election results, which reversed some negative impacts. Net income from the net monetary position declined by 5.7% quarter-over-quarter due to stable quarterly inflation. On the profit and loss statements, net interest income totaled ARS 585.5 billion, a 6.6% decline quarter-over-quarter, where interest income rose less than interest expenses because of sudden rate hikes. While loan income grew by 19%, income from government securities surged by 66.6%, attributed to the high proportion of TAMAR floating rate bonds that quickly responded to market rate shifts. Costs rose mainly due to higher deposit expenses, particularly from time deposits. Loan loss allowances increased by 37.1%, reflecting the worsening nonperforming loans, particularly in retail, requiring higher provisioning in light of sector trends. The loan loss allowances affected the cost of risk, which reached 6.63% in the third quarter of 2025. Net fee income was ARS 137.1 billion, a 37.5% quarter-over-quarter increase due to better pricing alignment strategies in fees and expenses. Total operating expenses were ARS 494.6 billion, a 3.4% decrease quarter-over-quarter, with notable improvements in administrative expenses from proactive efficiency measures across various areas, including software and advertising. The stability and improvements in efficiency ratios indicate progress, and we anticipate further enhancements in 2026. Private sector loans reached ARS 12.8 trillion, reflecting a real terms growth of 6.7% quarter-over-quarter, primarily driven by foreign currency loans, particularly in commercial financing for exports and investment projects. In the peso portfolio, demand for credit cards and pledge loans remained strong, while consumer loans exhibited no growth due to stricter policies applied amid rising nonperforming loans. Overdrafts dropped by 12.1% amid escalating interest rates. After years of growing commercial loan segments, the swift rise in rates impacted commercial loan demand, making it less favorable compared to retail. BBVA Argentina's market share of private sector loans increased to 11.39% in the third quarter of 2025 from 10.58% a year ago. Our nonperforming loan ratio on private loans hit 3.28% in September 2025, still below the system average, despite the rise in the nonperforming retail portfolio reflecting an increase in delinquencies in credit cards and consumer loans, consistent with systemic trends. Commercial nonperforming loans, however, displayed strong performance, maintaining at 0.10%. As displayed, our total gross loans and other financing to deposits ratio was 85%, down from 88% in the second quarter of 2025, but above 65% in the third quarter of 2024. Total loans as a portion of assets were at 57%, compared to 58% in the second quarter of 2025 and 43% in the third quarter of 2024, indicating a slight rise in public sector exposure driven by regulatory changes in reserve requirements and reduced loan origination in a high nonperforming loans environment. Total deposits reached ARS 15.4 trillion, an 11.2% increase quarter-over-quarter, with our market share of private deposits at 10.09% by the third quarter. Private nonfinancial sector deposits in pesos rose to ARS 9.8 trillion, climbing 7% quarter-over-quarter, attributed to increases in time deposits and interest-bearing checking accounts, partly offset by decreases in investment accounts. Foreign currency deposits expressed in pesos increased 16.6% quarter-over-quarter, chiefly due to time deposits from mutual funds and an 8.3% growth in savings accounts. Our capital ratio stood at 16.7%, down due to a 7.4% rise in risk-weighted assets that outpaced the 2.9% drop in common equity Tier 1 capital from the fall in public securities valuations, accounting for two-thirds of the quarterly capital ratio decline. Public sector exposure outside the Central Bank reached ARS 3.6 trillion, marking a 16.4% surge from 15.88% in the second quarter of 2025, attributed to a larger position in securities due to heightened requirements for TAMAR bonds. The liquidity ratio for the quarter was 44.3%, a decrease from 48.7% in the prior quarter, with local currency ratios falling to 37.6% from lower valuations of public securities. Liquidity in foreign currency increased to 57%. In line with our commitment to deliver shareholder value, we continued dividend payments related to the 2024 financial year, completing installments 3 to 6. In summary, despite the environmental challenges, BBVA Argentina has shown remarkable resilience and effective management throughout the third quarter of 2025. The positive growth in credit, delinquency rates below the sector average, and robust liquidity and capital ratios reflect our quality risk management and cautious approach. We reaffirm our commitment to sustaining activity, maintaining operational efficiency, and delivering enduring value for our shareholders. This concludes our prepared remarks. We will now take your questions.

Our first question comes from Brian Flores with Citi.

Apologies. I was having technical issues. I have 2 questions. The first one, kind of a mandatory one on the guidance. Just wanted to check if you are reiterating the real loan growth at 45% to 50% year-over-year with deposits at 25% in real terms. I think the last time we discussed the ROE range you provided was real ROE of 10% to 15% and expectations of the Tier 1 ratio between 16% and 16.5%. Just wanted to check if all of these items are maintained given obviously a hectic third quarter. My second question is on basically loan growth. You showed market share gains, very strong loan growth. But just given the economic stagnation of the third quarter, how much of this growth would you consider genuine versus merely refinancing from existing clients that were struggling with liquidity. Just wanted to understand how we should think about loan growth going forward.

Everyone, regarding your questions about guidance, we are comfortable with a real terms loan growth of 45% to 50%. For deposits, we expect something higher than what you mentioned, so around 30% to 35% would work for us. We're thinking of a return on equity in the high single digits. As for the capital ratio, we aim to finish the year near 17%. There are no changes in our guidance; we are keeping a consistent outlook for the entire year. As for loans, we believe the growth is genuine. A part of the growth is related to U.S. dollar loans, and in terms of personal loans, we have not seen growth in that area. The retail side regarding personal loans and credit cards is delicate due to the increase in non-performing loans, so we are being cautious about growth there. Our growth primarily comes from U.S. dollar loans and is closely tied to companies.

Thank you, Carmen. I think the last time we spoke was maybe 3 weeks ago in one event we hosted. You mentioned the sustainable ROE of the bank is around mid-double digits at least. So just wanted to think if maybe 2026 is a transition year towards this level.

Okay. I was discussing the end of 2025 and may have misunderstood your question. Regarding 2026, we continue to expect mid to low teens growth. 2026 should be better than this year, although it might not be at a sustainable pace. The trend should move upwards, and we can maintain this mid to low to mid-teens range.

Our next question comes from Tito Labarta with Goldman Sachs.

Could you provide an update on the daily reserve requirements and the government's considerations regarding a potential reduction to enhance liquidity and facilitate growth? Additionally, how do you foresee these factors influencing NIM in the fourth quarter and into 2026? What are your general thoughts on the potential evolution of NIM? My second question relates to the rising retail NPLs due to short-term uncertainties. How are you approaching asset quality moving forward? Do you anticipate a quick reversal, or do you foresee a prolonged credit cycle? I'm interested in your perspective on asset quality and how it might affect your ability to expand the retail loan portfolio.

This is Diego. Thanks for the question. I will address the first one. Concerning reserve requirements, the Central Bank has already implemented some changes. The third quarter was particularly challenging because they raised the reserve requirements two or three times and required us to comply daily. This led to inefficiencies for us. However, starting December 1st, even though we still need to meet these requirements daily, we only need to comply with 75% of the total requirement set by the Central Bank. This is a significant improvement for us, as it will eliminate inefficiencies. Additionally, the Central Bank has reduced the percentage of requirements on our site deposits, which positively affects profitability since this is money that was previously earning a 0% rate at the Central Bank. Now, we can meet these requirements with bonds, leading to meaningful changes for us and for banks in general. We anticipate that the Central Bank will further reduce the level of requirements in the coming months. We believe that the restrictive monetary policy in place since May or June will eventually be relaxed, providing us with more liquidity to support the growth we expect for next year.

Okay. I will address the question about non-performing loans (NPLs) and our observations. We finished September with an NPL rate of 3.28%, while the overall system was above that, around 4%. This indicates we are performing better than the average. However, this quarter has presented challenges due to rapid inflation decline and persistently high interest rates in real terms, which have had an impact. We anticipate the fourth quarter will also be complex, possibly resulting in a slight increase in NPLs compared to this quarter, though not significantly. Looking ahead to 2026, we expect it to be a much better year in terms of NPLs and cost of risk. Currently, the cost of risk stands at 6.63% over the first nine months, and while we foresee a slight uptick, it's not expected to be dramatic, followed by a decrease in 2026.

Great. That's helpful. Just one follow-up on as the reserve requirements get relaxed, I mean, rates, I think, have come down from the peak as well. How do you see the evolution of NIM, right? Because we saw some NIM pressure in the quarter. Do you think that already begins to reverse in 4Q? Just to think about the net interest margin evolution from here?

NIMs have been quite stable throughout the year, especially when excluding the unusual third quarter. This quarter was unique as interest rates shifted dramatically in a single day, impacting our liabilities much faster than the repricing of our assets, even though our assets are generally short-term. For instance, 60% of our bond portfolio adjusted according to interest rates, which helped maintain our NIM during this period. We fared better than many competitors. Looking ahead to the fourth quarter, we anticipate a reverse trend, expecting higher NIMs. For next year, we don't foresee a rapid decline in NIMs due to sustained demand for loans, although liquidity is not particularly high. We believe that banks, including ours, will retain pricing power with our customers, making it unlikely for NIMs to drop significantly next year.

Our next question comes from Carlos Gomez-Lopez with HSBC.

Two questions. One, as you mentioned, the asset quality is still going to deteriorate into the fourth quarter. So essentially, my question is the damage from the high interest rates, when do you think that will be gone? We will see it through? And have you seen already demand started to come or it's still too early? And second, what is the optimal level of capital that you want to achieve now that you have come down all the way from 33% to, I believe, 16.7% now. Where would you like to stabilize the capital level?

Thank you, Carlos. Regarding the demand for credits, we anticipate that the retail sector will recover slowly. We need to determine how long it will take to address the high non-performing loan ratios. Therefore, we expect a gradual improvement in retail. Conversely, in the commercial sector, there is already significant demand for U.S. dollar credits among companies, as well as for pesos. We see distinct dynamics between retail and commercial. We believe that 45% to 50% growth in loans will primarily come from companies, especially dollar-denominated loans. That's the response to the first question.

Carlos, this is Diego. Regarding our capital level, as Carmen mentioned earlier, we anticipate finishing 2025 with a ratio of about 17%, maybe a bit more. For the next few years, we have a management minimum we are comfortable with, which is just under 13%. However, when we look ahead to the next four or five years, we expect the Argentine financial system to grow in real terms, and BBVA to continue increasing its market share. Given this, we do not expect to reach the 13% or 12.75% level. We do have options to issue subordinated debt at any time, but currently, we do not have a Tier 2 instrument in our portfolio. Therefore, we are not anticipating any capital concerns in the coming years.

And this is a bit technical, but actually, when I was looking at risk-weighted assets, there seems to have been something changing in the formula from second quarter to third quarter. Your capital consumption seems to be much higher than what the loan growth seems to justify. Was there a regulatory change that we overlooked?

No, if you are referring to our decrease in the third quarter, it is primarily due to the significant decline in the valuation of our public sector debt, as the end of the third quarter marked the worst point for Argentinian assets. Bonds were experiencing their lowest value. However, in October, our capital ratio will be much higher than it was in the third quarter.

Okay. So this was temporary and in October it should go back up. And going back to the loan demand that we mentioned before. So we have this high NPLs that have to be absorbed digested. So the problem right now is lack of demand in terms of customers or lack of willingness on the part of banks to lend until that NPL situation is solved.

I would say it's both. Yes, in retail, and commercial is another story, and we are okay with that. In retail, I guess it's both. High interest rates are contributing to the situation, but yes, there's a lack of demand and more restrictive lending policies. So yes, both.

Our next question comes from Pedro Ofenhagenen with Latin Securities.

I wanted to ask what risk or pressure points do you identify in this new credit expansion following the electoral result and looking ahead to 2026? Are there any specific segments where you expect to see greater sensitivity?

Sorry, Pedro, I'm not sure if I got your question right. Can you please repeat?

Yes. Regarding credit growth for 2026, what risks or pressures do you anticipate related to non-performing loans or liquidity? What are your expectations for credit growth?

No, we don't see any issues related to capital or liquidity. We need to be cautious about non-performing loans on the retail side and assess where these high levels will settle. We anticipate that the worst will be behind us by the end of this year or early next year, after which we expect a return to more normal levels. On the commercial side, we see no concerns; there is demand. We believe that with the ongoing reforms and if everything progresses as the government is indicating, companies will be more inclined to invest, allowing us to finance those investments in pesos and dollars. The key message is that there are no restrictions regarding capital and liquidity.

Next question from Mateus Raffaelli with Itau BBA.

So I'd like to ask about coverage ratios and cost of risk because we've been seeing coverage trending downward covering 99% as NPLs continue to rise in the short-term outlook, at least for continued increase in NPLs, but the bank is still growing significantly portfolios. So how should we think about coverage ratio levels in this particular scenario of high growth and high NPLs? And I know coverage is an output of the models, but it would be nice to hear if maybe this is the core level for coverage ratios and should improve or maybe still comfortable with these levels considering the portfolio growth mix, more commercial retail. And also if you could give us an outlook for retail NPLs, maybe it stabilizes going into the second half of next year or maybe early in that...

Okay, Mateus, thank you for your question. So first of all, maybe it's good to notice that coverage ratios were really, really high because of the lack of NPLs in the past years. So we were at a very good level of this ratio. And now, of course, in a more complex environment, it's normal that you see a reduced coverage ratio. Then these levels, we are comfortable in this 98% to 100% levels for 2025. We believe we are not going to decrease much more for this year. And then 2026, we are already projecting higher levels. So it should be the minimum levels we are forecasting to see.

The Q&A session is now concluded. I would like to turn the floor back to BBVA's team for closing remarks.

Okay. Thank you all for joining the call. And if you have any further questions, please do not hesitate to contact us. Have a good day, and goodbye.

This concludes today's presentation. You may disconnect, and have a nice day.