Grupo Financiero Galicia S.A.
Q1 2013 Earnings Call Transcript

Published: 13 May 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Grupo Financiero Galicia first quarter earnings release conference call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I will turn the call over to Pablo Firvida. Please go ahead, sir.

[Pablo Firvida:]

Thank you. Good morning, ladies and gentlemen. Welcome to the Grupo Financiero Galicia first quarter of fiscal year 2013 conference call. I am Pablo Firvida, Head of Investor Relations. With me today are some members of the management of the bank and Grupo. We want to thank you for attending this call. I will make a short introduction in order to explain the operating conditions under which the reported results have occurred and summarize the bank’s performance during the quarter. Then we will take your questions. 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. During the first quarter of 2013, the international financial markets showed a significant reduction in volatility as well as an increasing risk appetite and the global economy activity continues to show a moderate growth rate. Under this international scenario, according to latest official estimates available, the Argentinean economy showed a weak recovery of 0.6% in the first two months period of 2013 as compared to the last one of 2012 and private estimates point to a 0.6% annual growth for the first quarter compared to 0.1% year-over-year contraction in the fourth quarter of 2012. National fiscal revenues increased 30% year-over-year while primary expenditures grew 31% year-over-year, also in the first two months of the year. The primary surplus amounted to 1 billion pesos and after interest payments of 3.1 billion pesos, the global balance for that period was 2.1 billion pesos deficit. Consumer prices expanded 2.4% in the quarter as measured by the official index and 5.3% according to private estimates while annual inflation rates as of the end of March reached 10.6% on 22.8% respectively. On the monetary front, the Argentine Central Bank constructed the monetary base by 5.1 billion pesos in the first quarter and the exchange rate increased from 4.92 pesos to 5.12 pesos per dollar, representing a rate depreciation of 4.1%. In March, the average rate on peso denominated bank deposits for up to 59 days increased to 14.6% from 15% in December 2012, while the average rate on overdraft decreased 31 basis points to 21.5%. Private sector deposits at the end of March amounted to 441 billion pesos, growing 4.2% during the quarter with peso denominated deposits increasing 5.1% and dollar-denominated deposits decreasing 4.5%. In the last 12 months, deposits in pesos grew 33% while deposit in dollars decreased 23%. In the quarter, transactional deposits increased 0.1% and time deposits 10%. At the end of the quarter, total loans to private sector amounted to 392 billion pesos, recording a 4.3% increase from December 2012, and a 30.9% interest rate increase in the year. Turning now to Grupo Financiero Galicia. Net income for the quarter amounted to 298.9 million pesos mainly to profits from its interest in the bank for 306.3 million pesos and in Sudamericana holding for 34 million pesos, and due to the deferred tax adjustment for 19.8 million pesos partially offset by administrative and financial expenses for 53.6 million pesos. Banco Galicia recorded 322.7 million pesos net income in the quarter 19.4% higher than the 270.2 million pesos profit reported in the first quarter of fiscal year 2012, mainly a result of increase in the volume of activity with the private sector. The bank's credit exposure to private sector reached 53.1 billion pesos, up 37.8% during the last 12 months and deposits reached 41.3 billion pesos, up 37.2% during the same period. At the end of the quarter, the bank's estimated market share of loans to private sector was 8.88% growing 31 basis points from a year before and the market share of deposits from the private sector was 8.98% growing 12 basis points in the year. As with regard asset quality, the NPL ratio ended the quarter at 3.71% growing 57 basis points year-over-year. The coverage of NPLs with allowances reached 109.5% down from 137.1% from a year before as the bank has been using the excess provisioning bill during 2011. Once again, I would like to mention that due to our consumer finance subsidiaries, the consolidated asset quality figures are different from the financial (inaudible) but if you can see the bank on a standalone basis, the asset quality metrics are comparable to our peer group. The net financial income increased more than 30% year-over-year due to higher volume and to a 66 basis points increase in the financial margin. The average interest earning assets grew by 9.3 billion pesos year-over-year and its yield increased 205 basic points while interest-bearing liabilities increased 7.3 billion pesos during the same period and its costs increased a 120 basis points. Net income from services increased 28.9% year-over-year explained by the growth in credit related fees, credit card fees and deposit account fees. Provision for loan losses for the quarter amounted to 441 million pesos, 185.4 million pesos higher than in the same quarter of prior year, mainly focused in individual's portfolio. Administrative expenses were 31% higher year-over-year with personal expenses growing 31.6% as a consequence of the salary increase agreements with the unions in 2012, of the growth in the headcount and of the provision on account of future salary increases recorded during the quarter. The remaining administrative expenses grew 30.3% due to higher level of activity, the expansion of our distribution network during the last 12 months and the cost increase of different services provided to the bank. As of March 31, 2013, the bank's exposure to private sector excluding debt securities issued by the Argentine Central Bank reached 1.7 billion pesos or 2.6% on total consolidated assets, same percentage as a year ago. As of the end of the quarter, the bank's consolidated computable capital exceeded by 1.1 billion pesos the 4.9 billion pesos minimum capital requirement or 23% and the total capital ratio reached 13.97% growing 106 basis points in the year. The bank's liquid assets at the end of the quarter represented 60% of the bank's transactional deposits and 28% of its total deposits, both ratios lower than a year ago as the credit demand grew more than the deposit rates. We expect better quarters to come as the first one has traditionally an unfavorable seasonality. We are now ready to answer the questions that you may have. Thank you.

[Operator:]

(Operator Instructions) We will take a question from Luis Guzman with Santander.

[Luis Guzman:]

I have a question regarding asset quality. In the quarter we saw an (inaudible) over quality in terms of NPL raises and general write-ups. It has been in the previous first quarters. So I would like to know what's your expectation on this line? And if you can give us a more color on what's going on there?

[Pablo Firvida:]

Hi, Luis. Basically, the first quarter, as I mentioned, has an unfavorable seasonality and in particular for individuals because the salary increases didn’t take place. Actually they are about to take place now in May. So the purchasing power of individuals is going down through the year and the first quarter is the lowest part. Most of the charges to the income statement are for the individuals. I would say around 45% in the case of the bank, 55% for the credit card companies and CFA, and for the rest of the year we expect a slighted iteration, like if I had to say a number, between 3.9% and 4%, the consolidated NPL ratio. We expect the converts to remain stable at around 110 during 2011. We deal this, what we call the NPC (inaudible) reserve for seeing this deterioration that is taking place and took place during 2012 and what we see also in 2013. But again, nothing dramatic.

[Luis Guzman:]

Okay, and I have two follow-up on the personal expenses. You were mentioning that they (inaudible) negotiations specially in the bank will come on the second quarter and do you expect an expectation of the range of the personal expenses that we can expect for the quarter or the year?

[Pablo Firvida:]

Yes, in the first quarter, we made a provision for 25% increase in salaries. Within that, the agreement will be around, this year perhaps, 24% to 25%. So for the rest of the year or for the full year you can think of 25% last to 28%, 27%. Yes, taking into account that we already increased that as a provision in the first quarter and taking into consideration some openings of a branch as in the case of the bank that we are going to open roughly 7 branches and in the case of the credit cards one or two.

[Luis Guzman:]

Okay. Thank you very much.

[Pablo Firvida:]

You are welcome.

[Operator:]

We will take our next question form Boris Molino with Santander.

[Boris Molino:]

Pablo, do you have an update about the progress of your joint venture in Peru on the card business? We heard a little bit some concerns regarding the regulation on fees and potential new regulations that could hurt the profitability of this venture? Do you have any comments on this?

[Pablo Firvida:]

Well, the Tarjeta Naranja Perú business was created with Banco de Crédito Peru back in September 2011 and it is, I would say, a pretty new startup. We have, like, nine branches in Lima and its outskirts and its growing but its still below its breakeven point. We are investing and learning and developing the business. Regarding regulatory pressures, I am not aware of that. Although what I heard is that rates are not high or too much higher than other bank's rates for the same segments. So I would have to wait and see if there is any news that as far as I heard nothing in concrete.

[Boris Molino:]

Okay, wonderful. Thank you.

[Pablo Firvida:]

Thank you.

[Operator:]

(Operator Instructions) We will go next to Federico Rey with Raymond James.

[Federico Rey:]

I would like to know if you have any idea of performance of spreads for the rest of the year? Thank you.

[Pablo Firvida:]

Hi, Federico. If I had to say a trend, we think that there could be a slight compression. Even in previous conference calls, we were seeing compression but reality shows that we increase margins but for the whole year, I still think that the margins should have a compression from the 12.37% what you saw in the first quarter and I think it could be between 11.5% and 12%. I don’t see, sorry, definitely I don’t see the margins really growing but it is nice compression.

[Federico Rey:]

Okay, and we see that as a result of higher funding cost or because of change in the portfolio mix?

[Pablo Firvida:]

Both things. It’s a change in the composition of our deposit base. You saw that time deposits were more than transactional deposits. Also, the productive line could have some impact there and yes, also, perhaps we are going to grow less in certain segments with higher interest rates like CFA or the credit cards. So, higher costs because of the mix and higher or lower interest earning assets due to different mix in the portfolio of the bank.

[Federico Rey:]

Okay. Thank you.

[Operator:]

With that, there are no other questions in queue at this time.

[Pablo Firvida:]

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

[Operator:]

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. Have a great rest of your day.