Grupo Financiero Galicia S.A.
Q1 2015 Earnings Call Transcript

Published: 15 May 2015

[Operator:]

Welcome to the Grupo Financiero Galicia First Quarter 2015 Earnings Release Conference Call. [Operator Instructions]. At this time I’d like to turn the call over to Pablo Firvida. Please go ahead, sir.

[Pablo Firvida:]

Thank you. Good morning and welcome to this conference call. I will make a short introduction and then we will take your questions. I need to say that some of the 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. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. According to prior estimates, the Argentine economy showed a 2.3% annual fall for the first quarter which compares with a 3.8% annual fall in the first quarter of 2014. In the first two months of the year the primary deficit reached 0.4% of GDP and act as a payment of interest, the global balance represented 0.8% of GDP. Consumer prices expanded 3.4% in the quarter and 16.5% in the last 12 months as measured by the official index. For private estimates, figures were 5.7% and 30% respectively. On the monetary front, the Argentine Central Bank contracted the monetary rates by ARS22.2 billion in the first quarter and the monthly average of the foreign currency exchange rate increased from ARS8.55 to ARS8.78 per $1, representing a 2.7% depreciation. In March, the average rate on peso-denominated private sector bank deposits for up to 59 days increased to 22% from 21.3% in December 2014, private sector deposits at the end of the quarter amounted to ARS742 billion growing 8.5% during the first quarter of the year. Transactional deposits increased 2.8% and time deposits increased 14.8%. In the last 12 months deposits in pesos grew 33.9% and deposits in dollars expressed in pesos 16.3%. At the end of March total loans to private sector amounted to ARS577 billion recording a 5.2% increase from December 2014, and a 20.9% in the annual increase. Turning now to Grupo Financiero Galicia. Net income for the quarter amounted to ARS958 million, 15.3% higher year-over-year mainly due to profits from Banco Galicia for ARS881 million and in Sudamericana Holding for ARS65 million and [indiscernible] for ARS18 million. The bank's net income which accounts for 92% of Grupo's results increased 14% from the year ago quarter. In connection to this it is worth mentioning that in the first quarter of fiscal year 2014 the bank recorded a significant profit spanning from its long net position in foreign currency due to the evaluation of product in January. The operating income increased 22% year-over-year with net income from services increasing 46.4% mainly due to fees related to national and regional credit cards and to deposit accounts. The net financial income growing 8.8% in the same period, without considering the effects from foreign currency quotation differences including forward contracts, net financial income grew 53% due to the increase the portfolio belong to private sector and of government securities together with a higher spread. Average interest earnings assets grew ARS17.9 billion year-over-year and its yield 808 basis points, while interest-bearing liabilities grew by ARS9.6 billion during the same period and its costs decreased 32 basis points. The decrease in the cost of funding was due to an improvement in the funding structure as a consequence of a 35% increase in the average balance of saving accounts which have literally zero cost. Provision for loan losses for the quarter amounted to ARS591 million, 13% lower than the ARS682 million recorded in the same quarter of the prior year. Administrative expenses were 34% higher year-over-year with personal expenses growing 32% mainly due to a provision recorded during the quarter on accounts of future salary increases. Amortization for organization expenses were ARS135 million increased 90% as in December 2014 the bank began to amortize each investment in the sub-core banking system. The remaining administrative expenses grew 33%. At the end of the quarter the bank's credit exposure to the private sector reached ARS84 billion up 25% in the last 12 months and deposits reached nearly ARS69 billion, up 23% during the same period. The bank's estimated market share of loans to private sector was 9.707% and the market share of deposits from the private sector was 8.72%. As regard to asset quality, the consolidated NPL ratio considering the loan book of the bank the credit card subsidiary and CFA ended the quarter at 3.72% showing a slight improvement as compared with 3.79% of the first quarter of the prior year. The consolidated coverage of NPLs with allowances reached a 107.2% similar to that recorded a year ago. As of March 31, 2015, the bank's consolidated computable capital exceeded by ARS3.2 billion, the ARS7.5 billion minimum capital requirement or 42.5% and the total capital ratio reached 15.9% increasing 247 basis points in the year. The bank's liquid assets at the end of the quarter represented 77% of the Bank's transactional deposits and 36% of its total deposits, compared to 83% and 35% ratios from a year ago respectively. In summary, during the first quarter of 2015, the Grupo Financiero Galicia have good operating results despite the regeneration of the main economic variables, while [indiscernible] Banco Galicia increased its net interest income and it's net fee income and at the same time possible to keep such quality metrics at similar levels a year ago with liquidity indicators and improving its capital ratio. We’re now ready to answer the questions that you may have.

[Operator:]

[Operator Instructions]. Our first question will come from [indiscernible].

[Unidentified Analyst:]

A question with regard to fee income generation, we were skeptical regarding fee income growth for the quarter as a result of Central Bank payments [ph] in both last December but fee income growth was solid as you mentioned in the quarter and was well above inflation versus the first quarter of 2014. So we like to get some color on your expectations regarding the fee income and mainly on the expected in front of the 20% capital fees increases in both by Central Bank last April. Thanks.

[Pablo Firvida:]

The fee income depends on in many - well first on the banks, the credit card companies on CFA and within the bank we have a wholesale banking and retail banking considering the banks roughly 35% of the fees are tied to this kind of capital 20% as you mentioned. In total fees that we can charge to companies or wholesale clients. In the case of the credit card companies, a big portion of fees are what we call the merchant discount rate related fees basically they are tied to the purchases of our customers not to limit on prices. So we think with more volume we’re forecasting, we can keep fees for the whole year growing let's say around 35%.

[Operator:]

[Operator Instructions]. Our next question will come from Federico Rey with Raymond James.

[Federico Rey:]

A question regarding loan growth, we saw an acceleration during this quarter. I would like to understand if this is the result of higher demand or we see a more aggressive stance at Grupo Financiero Galicia? Thank you.

[Pablo Firvida:]

Well we have many different variables moving there. In terms of individuals you see that the loans, financing granted through credit cards have increased, that it's related to the evolution of prices inflation. We also have to this productive line that the Central Bank forces banks to grant. That of course we must comply with that. We’re seeing some improvements in certain activities but we don’t expect a great year in terms of loan growth, we’re forecasting for the full 2015 something around 25% that is also the percentage we’re forecasting for inflation, so we’re growth not very significant.

[Operator:]

[Operator Instructions]. And at this time we have no further questions in the queue. I will turn the conference back over to our speakers for any additional or closing remarks.

[Pablo Firvida:]

Thank you for attending this call. If you’ve any questions please do not hesitate to contact us. Thank you, again. Good morning.

[Operator:]

Thank you. And again ladies and gentlemen that does conclude our conference for today. We thank you all for your participation.