Grupo Financiero Galicia SA (GGAL) Q2 2026 Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia 2nd Quarter 2026 Earnings Call. This conference is being recorded and the replay will be available at the company's website at gfgsa.com. We would like to inform that all attendees will only be listening to the conference during the presentation and then we will start the question and answer session when further instructions will be provided. Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities laws and are subject to risk and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors could cause results to differ materially from those expressed in their respective forward-looking statements. Now I will turn the conference over to Mr. Pablo Frivida, Head of Investor Relations. You may begin your conference.

Thank you. Good morning and thank you for joining this conference call. Before reviewing our operating performance, I would like to briefly address the macroeconomic backdrop that shaped the performance of the financial system during the quarter and provide the context for our business trends. According to the Monthly Indicator for Economic Activity, EMAE, the Argentine economy expanded 2.7% year-over-year in June and recovered 0.8% month-over-month on a seasonally adjusted basis. Despite this monthly improvement, activity remained 1.1% below December 2025 levels, mainly reflecting the declines recorded in April and May. In the second quarter of 2026, the primary surplus stood at 0.4% of GDP, in line with the level recorded in the second quarter of 2025. On a year-to-date basis, the primary surplus reached 0.8% of GDP. During the first half of the year, total revenues declined 5.7% year-over-year in real terms, while primary spending decreased 2.8% in real terms. The National Consumer Price Index accumulated a 33.5% increase on a year-over-year basis and a 16% increase during the first month of 2026. During the quarter, monthly inflation decelerated from 3.4% in March to 1.9% in June. The monetary base expanded by 4.1 trillion pesos during the second quarter and 8.5 trillion pesos from the end of June 2025, representing a 23% year-over-year growth. In June 2026, the exchange rate averaged 1,450 pesos per dollar, implying an 18.5% year-over-year depreciation. The average rate on 30-day peso-denominated private sector time deposits, above 1 billion pesos, Tamar, stood at 22.7%, 10.9 percentage points below the June 2025 average. Turning now to the financial system, private sector peso-denominated deposits averaged 117.4 trillion pesos in June, increasing 8.4% during the quarter and 31.8% over the last 12 months. Time deposits grew 8.2% during the quarter and 45.5% year-over-year, while Peso-denominated transactional deposits declined 8.4% during the quarter but increased 17.1% year-over-year. Private sector dollar-denominated deposits amounted to $39.4 billion, increasing 1.9% during the quarter and 29.6% over the last 12 months. Peso-denominated loans to private sector averaged P98.7 trillion in June, increasing 6.8% quarter-over-quarter and 36.4% year-over-year. private sector dollar-denominated loans amounted to 23.5 billion dollars recording a 14.6 percent quarterly growth and a 48.8 percent annual increase overall the second quarter was characterized by a more stable macroeconomic environment improving real activity indicators and continued expansion across key financial system aggregates Moving on to Grupo Galicia, net income for the second quarter amounted to 258 billion pesos, 12% higher than in the previous year, which represented a 2.1% return on average assets and an 11.3% return on average shareholders' equity. This result was mainly due to profits from Banco Galicia for 158 billion pesos, from Fondo FIMA for 38 billion pesos, from Naranja X for 36 billion pesos, from Galicia Seguros for 23 billion pesos, and from Galicia Securities for 8 billion pesos. Banco Galicia and their income improved by 211% sequentially and 21% compared to the second quarter of 2025. Supported by lower funding costs due to the consolidation of lower interest rates, stronger performance from government securities and derivatives, and a modest expansion in net interest margin. Great quality trends also improved, reducing long-loss provisions, while ongoing integration synergies from GaliciaMAS, ex-HSBC, drove further efficiency gains. Results additionally benefited from lower inflation-driven monetary losses in a decelerating inflation environment. Average interest in assets reached 30 trillion pesos, 6% higher than in the previous quarter, primarily driven by a 27% higher volume of government securities in pesos and a 37% higher volume of government securities in dollars, together with a 9% growth of dollar-denominated loans, while peso-denominated loans decreased 7% in line with more selective origination policy and lower demand in the same period its yield decreased 190 basic points reaching 21.1 percent 34.8 percent in peso portfolio and 7.4 percent in the dollar portfolio due to lower yields on both local and foreign currency denominated loans Interest-bearing liabilities decreased 3% from March 2026, amounting to P24 trillion, mainly due to a 10% lower volume of liabilities in dollars, partially offset by an 8% increase in peso-denominated time deposits. During this period, its cost decreased 159 basic points to 10.1%, reflecting the broad-based decline in interest rates that began toward the end of the first quarter of 2026. Net interest income decreased 3% when compared to the prior quarter. Interest income declined 8%, mainly driven by a 17% lower interest income from loans and other financing due to lower volumes and the decline in interest rates during the quarter. This was partially offset by a 20% higher income from government securities, primarily driven by a higher average portfolio and stronger returns from CPI-linked securities. Interest expenses were 16% lower, mainly related to deposits. Net fee income increased by 2% quarter-on-quarter, mainly due to a 14% decrease of fee expenses. Net income from financial instruments was 275% higher than in the previous quarter, mainly due to lower losses from derivative financial instruments, which decreased 85%, An 84% rise in results from the de-recognition of assets driven by sales of government securities classified at fair value through OCI, 50% higher gains from government securities measured at fair value, and a recovery in the results from private sector securities. Results from quotation difference of foreign currency decreased 13% quarter on quarter. This performance was explained by a lower level of transactional activity, given that the previous quarter had registered a higher volume of operations by retail customers. Provision for loan losses declined 8% quarter-on-quarter, driven by a decrease in loans becoming stage 3 and the associated deterioration of that portfolio, reflecting signs of improvement in the delinquency indicators observed during the quarter. Personal expenses went up 12% sequentially due to an increase in the provisions for variable payments aligned with improvement in the financial performance, while administrative expenses were flat quarter-on-quarter. Other operating expenses declined 15% quarter-on-quarter, driven by a 14% lower turnover tax, 13% lower other fee-related expenses, and a 21% decrease in other financial results. The bank's financing to the private sector reached nearly 25 trillion pesos at the end of the quarter, up 4% in the last quarter, with peso financing decreasing 4%, and dollar denominated financing up 19%. Deposits reached 27 trillion pesos, 7% higher than a quarter before, due to a 7% growth of deposits in pesos and a 6% increase in dollar denominated deposits. The bank's estimated market share of loans to private sector was 15.1%, 69 basic points higher than at the end of the previous quarter, and the market share of deposits from the private sector was 14.3%, 42 basic points higher than in the first quarter of 2026. The bank's liquid assets represented 93.1% of transactional deposits and 55.2% of total deposits, compared to 95% and 56.6% respectively as of the previous quarter. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 8.3%, reporting a 60 basic points deterioration as compared to the 7.7% of the first quarter of 2026. The coverage with allowances reached 92.8%, up from 91.4% recorded in the prior quarter. As of the end of June, the bank's total regulatory capital ratio reached 26%, while the Tier 1 ratio was 25.9%. both increasing 48 basic points from the end of the prior quarter in summary during the second quarter profitability improved sequentially supported by a stronger contribution from financial instruments lower funding costs reduced loan loss provisions and continued efficiency gains from the integration Business volumes remain resilient, with growth in total financing and deposits, particularly in dollar-denominated loans, while we continue to gain market share in both loans and deposits. At the same time, the non-performing loan ratio increased during the quarter, although coverage levels improved and provisions declined, reflecting early signs of stabilization. Overall, Grupo Galicia maintains strong liquidity and solvency metrics, and will remain focused on disciplined growth, preserving capital strength, and further improving asset quality and profitability over the coming quarters. Now, Gonzalo Fernández Cobaro will make some additional remarks.

Thank you, Pablo. Talking about our financial performance, as Pablo said, we saw a better quarter as interest rates stabilized at lower levels, with margins slightly increasing too, and also better returns from our bond portfolio. Our cost of risk continued going down as we expected, and expenses under control enjoying the results of last year restructuring. Choking about volume, loan growth continues to be slow due to the low demand in the commercial credit side of pesos, better in dollars, and strict origination policies on the consumer We expect some recovery in the lending volume in the second half. Our projections for loan growth are now around 10 to 15%, with more participation on the dollar side for companies, as it had been happening in the second quarter. We see deposits growing around 10% for the year. As we said in prior calls, cost of risk already had its peak on the fourth quarter, and we started to see credit losses charges to decrease in the first and the second quarter. Stabilization and reduction of NPLs will take one more quarter than expected. We are seeing now the peak in the second quarter, so in June now, with a stabilization and reduction going forward. In the bank, we expect a slight decrease of NPL's ratio in the third quarter and reaching around 6.3% at the end of this year on the NPL ratio. We see a cost of risk for the bank around 8.3% for the full year 2026. That's our expectation for the rest of the year. We are that great losses charges will continue going down in the second half as it has been happening in the first two quarters. On the cost side, we are capturing the benefit of the restructuring made last year, as I said, after the HSBC acquisition and expect to end the year 11% lower cost than prior year. We already have the same amount of headcount than the one we had before the acquisition of HSBC. And lastly, regarding returns, we see our ROE around 10 percent for the year we trust that the lending volume will pick up to achieve this goal of course while the lending growth is low we also invest in other earning assets like government bonds at good yields the goal here is to grow earning assets to be able to continue to improve earnings and results so with that i think we are open for questions we're going to start the question and answer session for investors and analysts.

If you wish to ask a question, please press the button raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Please hold while we pull for questions. Our first question comes from Daniel Vaz from Safra.

Hi, everyone. Thanks for the opportunity of making questions. Gonzalo and Pablo, So maybe my first question will be on your macro expectations for the year. I guess last quarter you mentioned inflation between 28% and 29%. I'd love to get your views on that at the margin. As we are looking at August, it seems like inflation is a little bit better, but I'd love to hear your thoughts. And secondly, I'd like to touch base on your loan growth between 10% to 15%, as you mentioned right now, and your also appetites to government bond at good yields. Do you think your loan growth could be maybe picking up later as you have good government bonds at good yields right now for you to capture and maybe your asset quality isn't as good as you expect for the beginning of the year? So I guess my question is maybe 2027 will still have a not so great loan growth but good yields improving from treasury results. Maybe that's the, your P&L balance would be more inclined to that. Is it a good assumption?

Thank you for the question. Well, first talking about economic projections for the year, we see inflation at 29, around 29% for the year. GDP growth around 2.6%. so so it's around the same numbers you were mentioning regarding inflation and regarding our our portfolio mix and our i would say that that is both i mean we are concentrated in in trying to to grow loans because that's that's the business you know we want to grow because it's the one that is sustainable so we are you know very close to to our customers and mainly commercial customers, to see opportunities. We have seen some dollar opportunities that we capture, mainly in the oil and gas arena, and also there have been some privatizations of state-owned companies that we have been supporting some of the groups for those that also require some financing, so we are active there. Of course, it's still slower than what we would like. and on the other hand yes we we grew in government bonds i would say that government bonds has a limit i mean it's not something that in order to continue to improve results we need to grow a balance sheet from the state we are now um so we can still grow some uh we have room to grow more more government bonds but the point is that it is um we have internal limits of course you know for prudency uh so so we need to grow a lot lending also and also to clarify in the in the bond portfolio we have two things we can have the bond portfolio to buy longer longer term bonds to come to and put them to accrue we can classify them as a whole to collect and sale or hold to collect and leave them to accrue interest but also we have the trading activity as you know that that will continue to happen that we see opportunities to buy bonds and and and you know and then sell them and buy longer terms we will capture the difference so it will be both the trade activity of course are going to be very very active as we have been in the in the second quarter to to capture opportunities you know why why as you know much in time we have some volatility between now and the elections because it's usual when elections they come closer so we we will try to get advantage on that we will continue to see opportunities to you know capture new new bonds that have good yields and just have them accrue in interest but at the same time we'll need to grow our lending portfolio because as i said the you know we have internal limits for for group for for hello for keeping our own portfolio and so we need we need to do business with clients with the private sector. And that's something that we will be focused on and we are very focused on and we'll continue to be focused on.

All right, thank you.

The next question comes from Ernesto Gabilondo from Bank of America.

Thank you. Hi, good morning, Gonzalo, Pablo and Etienne. And thanks for the opportunity to ask questions. My first question is one that I made to the other banks and it was on the political and macro outlook. So I think it was a couple of weeks ago or three weeks ago we started to see some surveys or kind of initial pulse ahead of the presidential election next year. So I just wanted to hear your thoughts on what are you hearing in terms of the business sentiment, the consumer confidence, the family indebtedness the financing of the RIGI projects is this something that Galicia can actually participate or it will be more the next years so all of these things ahead of the election and my second question is on your ROE guidance so you delivered 7% the first half you mentioned a number I didn't get it So if you can also remind us what was the ROE now for the year and how should we think about the evolution during the second half. And also, how do you see your medium-term ROE? What do you expect that to start recovering? What do you see long growth start recovering? As you said, you have reduced the guidance to 10 to 15. So just wondering how you see the picture more for the next year.

Thank you, Ernesto. i mean talking about i mean the future between now and the elections i mean we'll see that but the argentina always you know when there is election we we may have some volatility we are not seeing it yet we see that the central bank has a a good and a stronger set of reserves that can help face any volatility issue or any higher demand on dollars than for example what happened will last midterm selections so we we believe that that will help that if there is any volatility that is something that is controlled that is something that won't generate big big disruptions so i think that's good for the for what we are seeing uh i mean i think looking at polls at this time is a bit too early i mean this can change every minute so we are not really focusing on that i mean as you know we are here in argentina for the long term so we we want to do business regardless the the situation of course with caution when we see that that delinquency is going up well we will change our policies and we adapt to each of the moments but so far i mean things are doing fine I mean GDP is growing we are as I said before very close to our commercial customers mainly in the oil and gas arena trying to serve all the value chain and all the suppliers also of all the oil companies and something that we are doing and we are of course participating the retail financing is very very big tickets so at some point the local financial system will participate with in a very small portion and some of those port of those financings are already you know satisfied with with international issuances but of course we are there for any any local portion of the for the financing that is needed and also as i said before to serve the value chain of the bigger companies but uh but as i said i mean so far so good i mean we expect some volatility as always, but nothing really big because we see that central bank is better capitalized and we better reserve than the ones that happened in the last elections. And we see talking about, you also mentioned, in the fairness of the families, we've seen that that's improving, at least in our portfolio, that's improving, and we are seeing our roll rates improving. So that's something that, of course, taking caution on on where to land i think at least for for financial system the worst is is we are living behind the words no um talking about uh returns roe what we are seeing the array for the year is 10 percent um around 10 percent i mean cannot measure the exact number but i would say around 10 percent uh we are seven and something cumulative yeah of course we we see that that will continue improving i would say around 12 percent try to end the year with something around 12 percent that that's a that's a goal and that's what we are expecting and we're what that what we are aiming to for that we need to continue growing our our lending portfolio of course at a lower level than what we expected at the beginning of the year but we are confident that mainly in the commercial side we can get some traction from now from now on talking about you know medium term roe of course that's our when when we talk about next year i think we are we we are aiming to to be at 15 i think it's too soon to give a guidance for next year but that's our target and our aim for next year and we will confirm a guidance in third quarter call that will be closer to year end but but that's at least what we are aiming and when we do our projections and when we try to shape our balance sheet towards that again we confirm that later in the year but when you talk about medium term well medium term is always where aim is to be about 15 percent I know we always said between 15 and 20. We need to see when we are going to achieve that. As you know, we have talked in the past, we have the inflation accounting. That is something that is a burden for Argentine banks. And as inflation continues to go down, I would say that in the last year that we have inflation accounting with the lower inflation, it will hurt us more than when we used to have high inflation because interest rate will continue to go down. and with a lower inflation, having that drag in your P&L will be harder and also will be more comparable with other countries but we're still having the inflation accounting. So when we are going to reach that, well, it's hard to say. Of course, that's for sure when inflation accounting is gone, we still need to see when that will happen.

But our long-term target is 15-20 talking about next year we are aiming at 15 we'll confirm later in the year if that's something that we'll see Perfect, now super careful, thank you very much Gonzalo Thank you The next question comes from Chito Labarta from Goldman Sachs Hi, good morning Gonzalo, Pablo thank you for taking my question just I guess my question is more on the deposit side of things We did see a pickup in deposits in the quarter, even in peso deposits, although there was about a 22 percent jump on the savings deposits. Just to think about how are you thinking about the positive growth going forward, both in pesos and in foreign currency, and particularly in terms of liquidity, if loan growth does improve into next year, you know, the lead to fund that.

And do you think this pickup we saw in the peso deposits in particular, is that sustainable? with anything particular in the quarter that jumped in the savings deposits um and yeah i guess i see that from going forward thank you thank you i mean yeah deposits we grew deposits in the second quarter we expect this to to to continue as i said we expect for this year total growth of 10 percent in deposits i mean we have been managing also the balance sheet and And when we see that the lending is tracking, then we also go and raise deposits. It's not something that we have been managing. At some point, we are not growing deposits because we don't need them. So we prefer to do a more efficient balance sheet management. Of course, we continue to work with customers to increase transaction on deposits and side deposits. But in terms of time deposit, that is the one that we have been lagging but lagging may on purpose because as we don't see the the the loans uh you know tracking high we prefer to to to manage better the the the balance sheet but but deposits are there we have tried to you know prove that when we go and and look for them We get those deposits, so it's something that will continue raising if the lending is higher, as we expect it will happen. That was pesos. In terms of dollars, we see some growth, but it will be, of course, lower than before. you know we don't have now a tax amnesty like that or there is something but we don't see that it will be that that that explosive that the ones of of years before but uh as as us dollars lending continues okay we're going to also be active in the markets with issuances in the local marketing dollars we have been issuing commercial papers and we'll continue that to fund also lending in dollars that is the one from the whole sale arena with the one that we we see tracking better so so it's something that we we we are not that concerned because we we think that we can bring those deposits if the um the lending is there okay no thanks and maybe just one follow-up question i guess this one on capital did see a bit of an increase in your capital ratios this quarter, but are we still below the cost of capital?

How do you think about the capital ratio evolution from here?

I mean, capital ratio as you know is high, so it allows us to grow and we think that we have enough capital for the next three years, I would say this year and three more with healthy growth, not with the growth that we had that we have been having which is is low we expect that uh at some point argentina we will start growing it's uh it's uh its loans as percentage of gdp so uh we for for the end year end we expect to be between 24 and 25 i would say a capital capital ratio but then on top of that we we with our estimations and paying a reasonable amount of dividends which is the more or less what we have been paying in the past we expect to have capital for for the next three years with a with a with a country that is growing in real terms the lending and without needing to raise capital at least for three years then of course we'll see but but and we we we are okay with this we prefer i mean we think that the value of our franchise is is the growth ahead rather than higher dividends so we will be combining dividends but but but at a point that let us growth and capture the the opportunity argentina may bring if everything continues within the stabilization path so so we we think that we have a right level of capital for the growth that Argentina can bring in the next two, three years.

Okay, perfect. Thank you, Gonzalo. Thank you.

The next question comes from Brian Flores from Citi.

Hi, Gonzalo and Pablo. My question is, on the net interest margin sustainability, this quarter benefited from funding costs repricing faster than asset yields and from stronger results on CER-linked securities. As rates continue to normalize, how should investors think about the balance between net interest margin pressure from lower loan yields and support from funding costs and treasury positioning?

I would say that, yeah, of course, that margins will continue to have pressures on the downside as inflation goes down. For the year, talking about the bank, I think we see margins at 16% for the year, for the full year. We are a bit higher now, but we still see that the second half maybe have some pressure to the downside. But full year, an average of 16, I think is fair to say. But then, of course, next year and the forwards and onwards, that will have more pressure to the downside if inflation continues going down, as we expect, but that's fine. I mean, we believe that also the inflation accounting will go down and that's why we are working also in efficiency and expenses reduction in order to compensate that. Of course, total margin is affected by the mix of peso and dollars. I mean, it's totally different, as you know, the the the mix the margin between peso which is above 20 percent and dollars which is three four percent so as we have been growing the dollar lending our margin is also affected by that it's not that we are deteriorating the peso the peso margin but the mix affects then the number so that will also be affected on the future depending on on how how the mix evolves going forward but But again, we are getting ready our structure, our cost reduction initiatives and everything for a bank that will have lower margins as will happen with Argentina with a lower inflation. On the other side, we will have a lower accounting inflation impact. So that will also be compensating the effects.

Good. Thank you. Now it's much clearer. Just one follow up, please. Looking ahead, what do you see as the single largest driver for ROE expansion from current levels towards your through-the-cycle profitability ambitions? Credit growth, lower credit costs, operating leverage, or balance sheet optimization?

I would say that credit growth. I mean, we need to grow our top line, our credits. So that's the main one. cost of risk reduction i mean you know we are still at high levels of cost of risk we we know that we need to continue reducing it it's something that is is low of course we are aiming at some point to get it to our five 5.5 percent cost of risk we we ended with 9.3 we are still you know a higher at higher levels and so that will but that will be reducing quarter by As I said before, I mean, for the year, we expect to be at 8.3 and we are at 9.3 now. So that will also be helping this year and next year, because next year we expect to have another notch down on cost of risk. So that will be another big contributor to profitability. And we continue, you know, with our work in efficiency, even though we made a big one after the HFBC acquisition, We continue, not with major initiative, but with a regular business-as-usual plan of, you know, headcount reduction, branches reduction, or branches optimization that we continue. So we can, you know, be more efficient, bring more automation, bring more AI to also help to contribute to the margins reduction. So the only point where it won't come is for margins increase if Argentina continues in this path, but it will be then a mix of balance sheet growth, you know, long lending growth, better cost of risk, and better efficiency.

Thank you very much.

Thank you.

The next question comes from Yuri Fernandes from JP Morgan.

Hey, Gonzalo, Pablo, Etienne, everyone. Thank you for the opportunity of asking questions. Just a clarification regarding a few of your guidance, especially the cost of risk. I think you mentioned 8.3 for the full year, just checking if this is the end of period or if this is the average for the year, and if this is Banco Galicia or if this is the entire holding, because I guess your cost of risk for the first half for the group has been running around 11, 11 and a half, and for the bank around 9.4. So just checking 8.3, this is the fourth Q26, or is this the average of the year? So that's question number one. And the same about margins. You just mentioned NIMS around 16, but when I look to the NIMS of the group here, I see your NIMS for the first half closer to 18%, like 17.9, 17.8. So my question is, is this the average or the end of period? Because if this is the average, this would imply a much lower name in the second half of the year.

Yeah, sorry. I was talking about the bank. Maybe I didn't qualify that. So the 8.3 is just the bank, which is at 9.3 now, going to 8.3 for the full year, for the 12 months, let's say. i mean and so 8.3 we expect to be the cost of risk of the bank only for the full year when i was talking about margins yes i was talking also about the bank which is around 17 something so we expect just to end the year at 16 but in the bank and the full group will be more or less you know around the the total group i think it's almost 18, yeah, I think we expect to end the year around 17, let's say, the last quarter at 17% in group and 16 in the bank. And cost of risk was bank and it's the full year, it's the 12 months.

No, no, super, super clear. Thank you for the clarification. Thank you.

The next question comes from Eduardo Rezende from UBS.

Hi, everyone. Thanks for taking my questions. I have two on my side. So first, a quick follow-up on the growth trends that you highlighted. You mentioned some opportunities in corporate dollar loans and expanding the private sector. I just would like to know what we could expect for the retail segment. I mean, if this more restrictive approach that we saw in recent quarters could continue. So this is the first question. And the second one is regarding NPLs. So you mentioned about some stability trends in the end of the quarter, and we all saw that through the broader trend. So if you could provide a quick call on which segments are driving this more significant inflation, it would be very helpful.

Okay. The firm was the growth in retail. um i mean no we we are we are you know working hard in trying to grow also the retail portfolio i mean mainly in the personal loans arena uh working with risk in order to you know go to different segments and and we have been seeing our volume in personal loans picking up from the bottom that we had that it was kind of the first quarter of this year we have been growing the daily volume still is moving the total portfolio is being moved slowly but we expect that for the for the second half that can increase again very carefully going to the right segments i mean we have now better products with lower rates with better for better segments than going after those that even though they have lower rates, they have also lower cost of risk, so profitability is the same. And so we expect, I mean, my point is we don't expect the growth we used to have. Still this year, of course, at some point we'll resume the growth. But for the second half, I would say that a portfolio of personal loss may grow 4% to 5%, but that's better than what we have been seeing. But it's something that we are working on and doing champion challengers all the time in order to find ways to grow in the retail segment with good, great quality, no? And it's something that, so we expect to improve, not at the point of the commercial ending. But again, we are being very close to that. So to see whether it's the moment to restart the growth in that arena. and the second point was NPLs I mean NPLs yeah we have seen we're starting to see the turnaround of that I mean this is mainly the main pros we have is credit cards and personal loans and in both we are seeing that of course that as we said before we are targeting different segments now and we are attacking also different segments or higher, I would say, higher segments, and that's paying back and that's why we are seeing the improvements. We still continue to do champion challenges to lower segments and still is not the time to grow, to go back to lower segments, but at some point we will. For the end of the year, we expect to be at 6.3 in the bank of NPLs. So that's a reduction for where we are now. We are at 8.3. So, and in general, I mean, we are seeing the amounts of customers, you know, going or rolling through stage two and MC3 improving. So, it's something that we expect to continue to see and we are monitoring that very, very closely.

Super clear. Thank you. Thank you.

The next question comes from Carlos Gómez-López from HSBC.

Hello, Gonzalo. Pablo, thank you very much and congratulations on the result, especially in the cost reduction. It's very spectacular. I had a question about the composition of the loan portfolio a year ago, about a quarter was in dollars. Now it's about a third, which is in dollars. Do you have any type of internal limit? Where do you see this portfolio going forward? And since we were asking about economic assumptions, where do you expect, I know this is very difficult, where do you expect the dollar to be at the end of this year and next year?

Thank you, Carlos. I mean, we have internal limits, but in terms of liquidity. So if our deposits grows, we can grow the portfolio. So we are very strict in liquidity and very, you know, very strict limit in liquidity in dollars because, as you know, Argentina has this history of problems with that. So we are around 40% more or less liquidity in dollars that we are always 40 to 50% liquidity. And that's we are we are achieving that, complying with that. And but our deposit in dollar grew a lot. So that's why we were able to increase portfolio in dollars. Of course, portfolio in dollars, we have a high proportion of the portfolio in dollars, which is short term, is, you know, exporter financing, which is very easy to not renew if our deposits in dollars goes down. So, but again, we still have some room to grow with the current portfolio, the current deposits. But we are also, as I said before, issuing the dollar commercial paper. So that will give us more capacity to lending dollars. But the limit, again, is as a liquidity, you know, liquidity over total deposit that we want to maintain. And we are complying with that. The other question was the dollar effects. I mean, for the end of this year, I think we are expecting like $1,600. and around $2,000 for the end of next year. Very clear.

Thank you.

Thank you, Carlos.

The next question comes from Pedro from Lighting Securities.

Hello, Gonzalo, Pablo, Etienne. Thank you for taking my question. I wanted to ask on NaranjaX specifically. We saw provisions declining quite significantly despite the increase in NPLs. Obviously, the loan book also went down. But to ask going forward, how is the new NPL formation evolving this month? And also on coverage, how should we think this 94, I think, coverage on Naranja X and 90 on Banco Galicia? It's more like a floor. And would you expect going back to 100? Hi, Pedro.

We can take the advantage that we have Hernan Garcia, Naranja X CFO, to answer the specific question about Naranja X, and then we can discuss the bank's coverage ratio.

As you mentioned, we are already seeing a reduction in the cost of risk during the second And for the second half, we still see further reductions on that metric. So, in terms of MPLs, from the year-end, we are expecting to be around 16% or 17% from almost 20% levels that we have during the second quarter. As I mentioned recently, it's important to stress the trends that we still see in short term. delinquency rate 30 days or four months rate delinquency rates are still going down and that's why we are expecting a reduction in NPLs and a recovery in terms of the coverage ratio to the range of 100%.

Perfect.

Just to be clear, the number was 17% of NPLs for the year-end? yes perfect super clear yes and thank you Hernan and in the case of the bank we see a gradual improvement in coverage perhaps in the next quarter getting to 95% and closer to 100% at year end perfect thank you Pablo you're welcome Pedro the next question comes from Lisandro de Oveiras from 1618.

Hi, team. I have a question regarding volumes in loans. And if you can, please do a double click in the 10 to 15% loan growth. it's expected the PESO loans to have a real growth or all real growth will come from dollar loans? Thanks.

I mean, peso alone will be small, the growth. I mean, we'll try to push it, but I would say that peso alone will be small, very small growth in real terms than most of the growth will come from the dollar side, I would say, yes.

Okay, perfect.

The next question is from Inácio Izniachowski from Invertir and Bolsa.

Hi, good morning. Thank you, Gonzalo, Pablo, and Etienne for taking my question. I have two quick questions focusing on the bank. Given the 38.8% in the efficiency ratio that reported in the second quarter, I wanted to know where do you see this metric by the end of 2026 and also what is the long-term figure that you have in mind once the synergies with the Galicia mass and the other initiatives that you are currently feeling that it's like a headcount and branch reduction are completed uh i would say that for for 2026 yes something below 40 for the bank i would say try to keep

this is like 39 around 39 and i think that that will be for the rest of the year i mean checking the long term of course the idea is every reduction will will cost more every point because yeah we'll continue to do efficiencies but if argentina continues in this path we'll margins will go down also. So I say that our, if I can say a longer term target, I would like to be between 37 and 38. But anything below 40 for us is good. We will try to aim 37, 38, but we need to see how fast the margins also go down. But for us, really, it's very important to continue pursuing cost reductions and we have a now a lot of work streams that implies ai in the you know know your customer arena in the call center and contact contact teams arena in order to continue reducing cost but again that will also go party passive with the margin reductions in the future So I would say that aiming around 37, but if we can stay below 40 in the longer run, I think that for us is a good achievement.

Okay, thank you. And the second question, just quickly, I know it's some kind of very difficult to answer this, but do you anticipate any regulatory improvements? I am specifically regarding the tax component on lending rates or potential reduction on reserve requirements. I know this is something that it's very difficult to answer because it implies going on the monetary policy and the fiscal policy, but I'm sure you have it in the agenda. And I wanted to know your view on this for the medium and long term.

I mean, it's something that, yeah, talking about regulatory reserves, for example, is something I believe is not in the agenda now of the central bank. Of course, talking about longer term, when Argentina, you know, continues to grow, it loans to GDP and starts to grow significantly the lending. I think that is something that may come back as an agenda for central bank. Don't see this in the longer medium term, in the short medium term. But, of course, if Argentina goes to that growth, significant growth in lending we are all expecting, well, that can come back because it may be needed. And talking about tax, I think that, yeah, I mean, I think that the agenda of the government is to reduce taxes. So I think that part of the reduction of the cost of credit for customers is taxes. As you know, for example, BIT, I think that won't affect us as a bank, but it will affect customers and maybe help to increase lending. I think BIT to consumers, in the lending to consumers, we are one of the few countries in the world that charge BIT to interest. And it's something that is coming back in the discussion because of the high interest rates in the market, et cetera. So something that at some point may be addressed to reduce, you know, all the tax burden that the tax has, that the, sorry, the lending has in order to reduce the cost for customers. So I see more that reduction of cost for customers than a benefit to us. We still have, again, as you know, the city taxes and the turnover tax from from cities and from provinces which is a very high burden that we all we all have yeah and that's something that we are as you know as you know among the banking associations you know talking to to central bank to everyone raising the concern because as margins continue to go down those costs will need to go down there is no way that we can continue affording those costs it's part of what we call the argentine cost so that's something that we with time i think that then we will need to go down i don't know when but it's something that i think that if argentina continues stabilizing those those high taxes we should go down and will go down and it's something that that we we will be also you know working with other banks to always raise that on the chamber as you know is this talking about regulatory things or whatever this morning the government announced you know new new financing for mortgages something very new i mean so we are still analyzing it it's you know time deposits from one to five years to banks in UBA, in inflation-linked time deposits, to lend mortgages with specific matters, an interest rate cap for customers, and a size to be for first housing only, etc. But I think it's a very, very good news that the government is very welcome, that the government's thinking means to help mortgages to grow and to help how to solve the problem that Argentina doesn't have a capital market a developed capital market that can you know buy securitization of mortgages etc something we can we have discussed in prior course so so so which is good for the financial system and mainly for the country as you know mortgages help to develop economies families etc so again i i cannot talk about the specifics of the program because it was announced this morning so we need to analyze it but in general these initiatives of course are is a good news and a good sign-up that is well-received by us.

Okay, thank you very much.

The next question comes from Federico Cabelli from AdCap.

Hello, Tim. Thanks for taking my question. We've seen a strong growth in dollar loans, and you mentioned that you went for growth in the second half of the year. I wanted to ask you about the other announcement, the other Caputo's announcement. which allows lending dollar deposits to companies without dollar revenues. I wanted to ask if you plan on growing in this segment also.

Yeah, I mean, for us, it doesn't change much because we already had, you know, availability of commercial pay per dollar, commercial pay per issue. And before this announcement, we could lend to non-dollar producers with those commercial papers. And we had availability. So for us, it doesn't bring additional availability. It brings additional availability, but we already had it. So it doesn't change a lot. I mean, we go very careful on that name by name. We have been doing that with a few big names. But it's something that we think we'll continue to go very carefully because, again, you know that then lending in dollars in Argentina will be always, it brings an additional risk of potential devaluations, etc. So, I mean, we'll continue as we have been done in the past, analyzing name by name, but we don't expect a huge growth because of this because, again, it's something that we go very carefully, just for a matter of prudency with our vantage.

Very clear. Thank you.

The question and answer session is over. We would like to hand the floor back to Pablo Frivida for the company's final remarks.

Well, thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Bye-bye. Good morning. Bye.

Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.