Grupo Financiero Galicia Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 28, 2025
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Operator

Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia First Quarter twenty twenty five 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 the conference during the presentation. And then we will start the question and answer section when further instructions will be provided.

Operator

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 risks 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 that could result to differ materially from those expressed in their respective forward looking statements. Now, I will turn the conference over to Mr. Gonzalo Fernandez Covaro, CFO and Mr. Pablo Filvida, Head of Investor Relations. You may begin your conference.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Thank you, Sofia. Good morning and welcome to this conference call. I'm Paulo Filvida. Together with me is Gonzalo Fernando Cobarto. According to the Monthly Indicator for Economic Activity, EMAE, the Argentine economy recorded a 5.6% year over year increase during March, while in year to date terms, the economic expansion reached 6.1%.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

During the first quarter of twenty twenty five, the primary surplus reached 0.5% of GDP and the overall surplus 0.2% of GDP. This implied a slight deterioration compared to the first quarter of twenty twenty four when primary surplus was 0.7% of GDP. The National Consumer Price Index accumulated an 8.6% increase during the first quarter of twenty twenty five and an 11.6% rise as of the April, reaching a 47.3% annual variation from April 2024. On the monetary front, the monetary base increased by COP 800,000,000,000.0 in the first quarter, recording a 145% increase as compared to March 2024. The exchange rate maintained a 2% monthly crawl throughout 2024 and the Argentine Central Bank slowed the pace of adjustment to 1% per month starting 02/01/2025.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

The exchange rate averaged 69 peso per dollar in March 2025, a 20.5% devaluation in year over year terms. On 04/11/2025, the Central Bank implemented a foreign exchange regime with a ban within which the exchange rate may fluctuate freely. These bans were initially set between MXN 1,000 and MXN 1,400 per dollar and will be adjusted monthly at a rate of minus 1% for the lower bound and plus 1% for the upper bound. The monetary policy rate started 2025 at 22%, but was reduced in late January to 29% and remained at this level until nowadays. In March 2025, the average rate on peso denominated private sector time deposits for up to fifty nine days stood at 29.5%, fifty five point nine percentage points below the March 2024 average.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Private sector deposits in pesos averaged 80,600,000,000,000.0 in March, increasing by 8.5% during the quarter and 89.9% in the last twelve months. Time deposits in pesos rose 16.5% during the quarter and 125.9% in the year. And peso denominated transactional deposits increased 0.6% during the quarter and 60% in year over year terms. Private sector dollar denominated deposits amounted to $29,700,000,000 in March 2025, decreasing 6.6% during the quarter and rising 78.3% in the last twelve months. Peso denominated loans to private sector

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

60,800,000,000,000.0 in March, showing a 20.1% quarterly increase and a two and twenty eight point one percent year over year rise. And private sector dollar denominated loans amounted to $14,100,000,000 increasing 42.1225.8% respectively. Turning now to Grupo Financiro Galicia. Net income for the first quarter amounted to Ps. 146,000,000,000, 60 3 percent lower from the year ago quarter.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

The result comes from profits from Naranha Ex for Ps. 64,000,000,000 from Banco Galicia for Ps. 37,000,000,000 from Galicia Asset Management for Ps. 29,000,000,000 and from Galicia Seguros for Ps. 11,000,000,000.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

This profit represented a 1.7% annualized return on average assets and an 8.8% return on average shareholders' equity. Going to Banco Galicia, the result of the quarter was negatively affected by the reduction in the prices of the trading bond portfolio and increase in the cost of risk associated with the growth of the loan book and increase in the NPLs in the Retail segment. The net income for the quarter was 90% lower than in the same quarter of 2024, due to an 84% lower operating result. This was primarily a consequence of a 68% decrease of net operating income as net interest income decreased 66%, mainly because during the first quarter of twenty twenty four, the bond portfolio adjusted by inflation had remarkably high yields. Net results from financial instruments fell 65% due to the reduction in the bond portfolio and results from foreign currency quotation differences decreased 80%.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

The above mentioned decreases were partially offset by a 26% growth of net fee income. Average interest earning assets reached ARS 14,900,000,000,000.0, 40 5 percent higher than in the same quarter of 2024, primarily due to a 97% increase of the average portfolio of loans in pesos and of 702% of dollar denominated loans, partially offset by an 88% reduction in the average balance of other interest earning assets in pesos. In the same period, its yield decreased 95 percentage points reaching 31.9%. Interest bearing liabilities increased 67% from March 2024, amounting to ARS 13,600,000,000,000.0, primarily due to the increase of time deposits in pesos and of saving accounts and other deposits in foreign currency. During this period, its cost decreased 41 percentage points to 13.9%.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Net interest income decreased 66% when compared to the first quarter of twenty twenty four. This was the result of a 63% decrease in interest income because of an 80% lower interest on government securities and a 99% lower interest on repo transactions, together with a 58% decrease in interest expenses, due to a 46% lower interest rate on time deposits and an 80% interest rate on other deposits. Net fee income increased 26% from March 2024, due to a 26% higher income from credit card fees and of 34% from fees on deposits. Net income from financial instruments decreased 65 due to a 67% lower results from government securities. Gains from FX quotation differences were 80% lower than the year ago quarter, including the results from foreign currency trading.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Other operating income decreased 39% in the quarter, while provisions for loan losses increased 193% because of the growth of the financing portfolio and to an increase in delinquency. Personnel expenses were 19% lower than a year before. And it is worth to mention that during this quarter, we began to use the provision for restructuring expenses established in the fourth quarter of twenty twenty four. Administrative expenses increased 25% due to a 57% increase of higher administrative services and a 20% increase of expenses for maintenance and repairment of goods and IT and 187% higher publicity promotions and research expenses. Other operating expenses decreased 49% due to a 52% lower turnover tax related to financial operations and 97% lower charges for other provisions.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Results from the net monetary position decreased 79% year over year following the downward evolution of inflation. The income tax charge was 65% lower than in the year ago quarter due to lower operating results. Finally, the other comprehensive income included a €5,100,000,000 loss, mainly due to treasury bills, leg ups. The bank's financing to the private sector reached Ps. 12,600,000,000,000.0 at the end of the quarter, up 107% in the last twelve months with peso financing increasing 88% and dollar denominated financing growing 177%.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

While by credit line, promissory notes increased 171, credit card financing 66% and personal loans 221%. Net exposure to the public sector decreased 35% year over year, primarily due to the reduction of repo transactions. This exposure represented 19% of total assets as of the end of the quarter compared to 40% of the year before. Deposits reached ARS 15,000,000,000,000, 40 8 percent higher than a year before, mainly due to 121% increase in saving accounts in dollars and a 69% increase in time deposits in pesos, partially offset by a 16% decrease in other deposits in pesos. The bank's estimated market share of loans to private sector was 13%, seventy eight basis points higher than at the end of the year ago quarter and the market share of deposits from the private sector was 14.2, four hundred basis points higher than in the same quarter of 2024.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

The bank's liquid assets represented 62.4% of transactional deposits and 39.3% of total deposits compared to 104.965.9% respectively from a year before. As regards asset quality, the ratio of non performing loans to total financing ended the quarter at 2.75%, recording a 66 basis points deterioration as compared to the 2.09% of the first quarter of the prior year. At the same time, the coverage with allowances reached 153.3%, up 4.9 percentage points from the 148.4% recorded a year ago. As of the March 2025, the bank's total regulatory capital ratio reached 21.1%, decreasing 10.7 percentage points from the end of the same quarter of twenty twenty four, while the Tier one ratio was 20.8%, down 12.5 percentage points during the same period. Consolidated with Galicia Mas, the total capital ratio would have been 25.3%.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

In summary, in a challenging political and macro environment, Grupo Financiro Galicia was able to keep asset quality, liquidity, solvency and profitability metrics at healthy levels and at the same time continue to move forward with the integration with GaliciaMas, which would be completed before the end of next June. We are now ready to answer the questions that you may have. Thank you.

Operator

We are going to start the question and answer section for investors and analysts. Our first question comes from Brian Flores with Citi.

Brian Flores
Brian Flores
VP - Equity Research at Citi

Hi, Pablo and Gonzalo. Thank you for the opportunity to ask a question. Just wanted the first one, if I can, on the guidance. We have seen some of your peers already shifting some of the lines in the guidance. And I think you did not mention it in your remarks.

Brian Flores
Brian Flores
VP - Equity Research at Citi

You just wanted to know if you're making any changes on any of the lines. And then the second question is on asset quality because we are seeing some positive duration. I know there was some changes on accounting, and I know the fourth quarter had perhaps some spikes. But I think now this is more comparable, and we are still seeing some pressures on asset quality. So could you elaborate a bit on where is it coming from this increase in delinquency particularly?

Brian Flores
Brian Flores
VP - Equity Research at Citi

And also, if we should expect this to normalize? Or maybe, I don't know, the new range is I know we're coming from a low base, but the new range is a bit higher than what we were initially expecting? Thank you.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Yes. Thank you for the question. I mean, in terms of guidance, we are seeing ROE for the year now between 1213% for the group. As we said, this is a transition year for us. We believe for the entire financial system where we are building our portfolio and we're coming from very low levels of lending.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So we're in that process of building the portfolio and compensating lower margins with higher volumes. And on top of that, we have the merge with Alicia Mas and we expect some expenses on the transition on the integration from the IT side, but also from the integration. We expect we may be short on the restructuring provision booked last quarter. We may need a bit more. So we don't know numbers yet.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

But that's what we are seeing with how things are evolving, which are good news for the future. It may have some more expenses this year. So that's why we are changing also the guidance on ROE for the group. Talking about delinquency or NPLs, I mean, we were coming the increase in NPLs comes from the individual's portfolio, not on wholesale. Wholesale is really flat.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So I would say this is entire for our consumer lending, let's say. But that is the one that grew fastest and started to grow fast. So we were coming from very low levels. We expect so we saw as the financial system in Argentina saw increase on NPLs. We are seeing that.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

We made some changes in origination in the fourth quarter, because I think we are also trying to look what is spot where we want to be After a high growth, it's something unusual for the local system to grow as fast. So we are now we made those changes. So we expect this to stabilize. And by the end of the year, the NPLs should be around or a bit less than what we are currently having. We may see still a spike in NPLs for the in the next couple of months, but then a reduction or stabilization for the end of the year.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So we knew that that was something was going to happen when you grow at pace. Again, we were coming from low levels. We believe that now with the main changes we make, we will be able to stabilize that and get to a normal, let's say, levels.

Brian Flores
Brian Flores
VP - Equity Research at Citi

Thank you, Gonzalo. So just to confirm on the ROE range, you're decreasing a bit from 15% to 12% to 13%. And then can you confirm if the loan growth of 50% in real terms and deposits between 3040% are rate to rate or have any changes?

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

No. The growth rates are we are keeping those. We think that those are still what's going to happen, yes.

Brian Flores
Brian Flores
VP - Equity Research at Citi

Super clear. Thank you.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Remember that as you said 12%, thirteen % in real terms. Our ROE has already excluded inflation because in Argentina we have inflation accounting and that's already included in the P and L as you just said.

Operator

Our next question comes from Ernesto Gabilondo with Bank of America.

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

Thank you. Hi, good morning, Gonzalo, Pablo and Etienne. Thanks for the opportunity to ask questions. My first one will be a follow-up in asset quality. So we noticed a higher NPL ratio, but at the same time we also saw cost of risk normalized from last quarter as it was abnormally high because of an impact on Tajeta.

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

So just wondering how should we think about the cost of risk evolving in the next quarters and for the full year? My second question is on expenses. We saw lower than expected expenses because you have started to use the expense provision build for HSBC in fourth quarter. But at the same time, you were saying that you should expect some expenses related to IT and the integration costs related to Galicia So I just wanted to think how should we expect OpEx growth for the year? And if there is at some point room to do some cost synergies?

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

And my last question will be on deposits. We have seen one of your peers remunerating deposits at 32% to attract clients. So I just wanted to know if you are following a similar strategy with your credit card business? Would it be the same strategy at the bank? So any color on this remuneration on deposits on each of the subsidiaries will be very helpful.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Thank you. So remember the three questions,

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

cost of risk.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Of risk. Yes, mean, of risk as you see for the group is stable. We have seen a big increase in the bank and a big reduction in Naranja. So talking about the bank, Caricia Bank, I mean, we'll see a spike in the first quarter as it says.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

We may see something also to continue in the second quarter, but then start to go down. And we expect a lower number in the fourth quarter around 5%, five point five % something like that 5.6% versus the 6.8% that we're having now. So for the bank, we see NII is stable. And for the bank, we'll see an improvement on the second half of the year. First half, we still be at these levels.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

We may see for the second half some improvement because of all the actions on the origination that I mentioned. Talking about expenses, think what's the second one about the I mean what you see, you see a reduction in expenses quarter over quarter not just because we are using the provision, but because last quarter we booked the provision. So last quarter you have provision that this year you don't that this quarter you don't have it, because the provision is paying for voluntary redundancies. So that's the main variation you'll see quarter over quarter. But so that's talking about I think you are talking about the synergies on GaliciaMas or the former HSBC.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

That's going that's I mean, it's I think the good news is we are anticipating and having a fast approach on synergies, because and we may be able to perform almost 90% of the synergies expected this year. The point is it's difficult now to predict on which phase because at some point you'll have the saving. But also if that happens, we may have a bit of higher restructuring expenses. As I mentioned in prior question, we the provision that we booked last quarter may not be enough. So if this trend continues.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So if that happened, we may have a one off this year of more restructuring expenses, but with the good news that we are getting sustainable saving for the future. So for the year, I would say, it's a bit soon to say, because it will be a mix of accelerating some synergies. And so the good thing of the saving, but also the one off of the restructuring. But we expect that I think the summary is that at the end we may end with a bit higher expenses because of the integration, system expenses and restructuring expenses, but with a faster approach. So we can start next year better than what we thought when we thought about this plan. And I think it was another one.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Remuneration of deposits.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Remuneration of deposits. I mean, as you know, Anadarko is remunerating deposits is plan of their business model. I mean, they take deposits on the digital wallet and they lend personal loans. In the bank, it's different. As you know, our current deposit base, we have our mutual fund, which is called the FEMA, the money market deposits that is 20 fourseven.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So customers can use that as a remunerating account. We are not seeing any big change in the near future. Of course, are always analyzing strategic alternatives and see what's best for our customers and for our funding base. But I wouldn't say we are making any we're thinking in any major change in the near future. Well, this of course can change as I said, because we're always analyzing an opportunity.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

But so far, we believe that for the bank, we are not thinking in that we're going to apply that option, let's say.

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

Perfect. Thank you very much, Gonzalo. Just a follow-up on this last one. Can you share with us how much are you remunerating in Elanco Equis? How much is in the mutual funds of the bank?

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

Just to have an idea of how is the difference between them. And additionally, are you seeing competitors being aggressive and at some point potentially changing the strategy of your of the bank? Or you think it's still too soon to know?

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

I mean, you're talking about that, I mean, about remunerating accounts so far, as you said, we just saw one bank doing it. So we don't we haven't seen a real change in the market. If you look at market share, I mean banks with higher market share haven't changed their policy so far. We are not seeing any change in general. Of course, are some players that may do as you mentioned.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So we are not seeing other changes like that. Of course, that may happen. In terms of rates Yes.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

I would like to add some comment there. Today, the funding breakdown in pesos for us is 70% with cost, 30% with no cost. And it's very itemized. And as inflation is going down, this threaten is becoming smaller, I would say. It was very important to remunerate transactional accounts or deposits when monthly inflation was much higher than today.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

In the case of our money market fund, the last yield I saw was around 23.8%, twenty four %. That is what is yielding and you can withdraw it anytime, any day, any hour. And in the case of Naranca, it's in the range of 30%. It has some different like buckets and you have limits in terms of amount, but on average would be around that number.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Yes. If you leave more the money like a time deposit they pay you more. But I think it's important what Paulo just said. I mean that we have we see that the attractiveness of the remuneration with inflation going down is always valid, but it lose attractiveness for the customer base because of the lower interest rates and the less inflation to combat.

Ernesto Gabilondo
Ernesto Gabilondo
Director - LatAm Financials Bank of America at Bank of America Merrill Lynch

Perfect. Now thank you very much, Gonzalo and Pablo.

Operator

Our next question comes from Carlos Gomez Lopez with HSBC.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

Hello. Thank you very much for taking my question. I don't think you have mentioned the economic assumptions that you have. I would like to know what you expect in terms of growth, inflation and exchange rate and interest rates by the end of the year and next year? Second, in terms of asset quality, you mentioned that on the corporate portfolio, everything has been fine.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

But we are seeing news of a number of corporates, which are starting to not pay at least their debentures, the capital market issuance. Do you think that you will see more such problems as interest rates go down and companies have to change their business models? Are you concerned about your cost of risk in the corporate segment? Thank you.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Yeah. about the second question first starting and then I'll let Pablo give you the other The on the wholesale, yeah, I mean, example, you are talking I'm sure about news of the last days about a company that is defaulting their offer, their issuance or the commercial papers etcetera. That for example in that exposure we have a very, very low less than $6,000,000 unsecured and then a couple of million secured. So we have a very low exposure on that one. So I mean, we with this change of Argentina, they may in case of change of business of country model, would say, maybe sectors winners and sectors that will lose.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

We read so far that our portfolio is well balanced and really, of course, that if things doesn't improve as expected in Argentina things can go south. But so far we don't we are not seeing a concentration in an area with an industry that is concerning us that can affect materially our performance. We can have things here and there, but we are not seeing so far as I said a concentration that can that is concerning us for the reasons you just mentioned.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Yes. Now hi Carlos. Now regarding the macroeconomic assumptions, these are from our Chief Economist. There is also a good source that is the Central Bank in which like 50 economies have their estimates and it's a kind of average. But looking at our chief economist, in terms of GDP, he's forecasting 5.4 growth this year and 4.5% next year.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Inflation for this year, 26% that is the December, December variation and for next year 14%. When we look at the FX, it's a moving target. But the last number he gave us was $1,230,000,000 at the end of this year and close to 1,400 next year. These are the main assumptions. In terms of interest rates, all or most of the interest rates are going down a little bit due to this expected reduction in inflation.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

So I mean, we're at 32% in the policy rate is right now. It will be 20 nine

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

percent.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

Okay.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

29%.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

So by the end of the year lower than that?

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Next year, he's forecasting something around 24 Again, it's a moving target, but that was the last number he provided.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

It's important to mention Carlos that what we are seeing because of the high demand of lending and loans growing faster than deposits, We are not seeing really even though the Central Bank have reduced the monetary policy rate, we are not seeing that happen also that going together with the lending rates in the market. Because again, as I said, I mean, demand for loans is high. And so we are not at that point and for that reason, we are not seeing that even though rate could continue going down, we are not seeing that lending rate come mainly in the individuals, but also in SMEs that that will continue to get that reduction. Of course, it may go up something down, but not at the same proportion because again in fact in the first quarter we saw margin if you exclude margin government bonds, our margin reduction was mainly affected by the trading portfolio. But if you exclude that and do margin in pesos excluding the government bond performance, it increased a couple of hundred basis points from prior quarter.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Because of the fast growth in lending, the high demand, the lending rates are not going down in the market. Just to complement that not because of Argentina situation, not necessarily a reduction in monetary policy rate will imply a reduction in the lending or in the whole margin of the banks.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

Very clear. Thank you.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

You're welcome.

Operator

Our next question comes from Pedro LeDuc with Itau BBA.

Pedro Leduc
Equity Research Analyst at Itau BBA

Thank you very much for the call and taking the question. Pleasure to be here. First on Naranja X specifically, very nice ROE close to 30%. If you can talk a little bit more about the business drivers here, it seems like on the NIM side and provisions also in the next few quarters. And if this should be still growing higher than the rest of the business.

Pedro Leduc
Equity Research Analyst at Itau BBA

And then last second question and quick on the market share that you report there under Galicia Mas, we fell from high 2% to low 2% this quarter. I understand there's an adjustment process taking place. So you can share a little more if this is already on the market share that we should see, if there's already more going to the other parts of the group. So these will be the two questions. Thank you.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

I'll start with the second one, which is the Galicia market share. I mean, what is happening there is we are anticipating customer migrations in wholesale for example, meaning complex customers. We are already asking them to open accounts in Galicia and start to transfer deposits and their transactionality to Galicia. So it's easy it's easier for the integration, not need to migrate complex customer that for example have trade finance, structured products. I mean talking about wholesale not retail.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So in that case, we even though you see market share reduction, part of that is done by the movement or the transition to Valencia in advance to the migration.

Pedro Leduc
Equity Research Analyst at Itau BBA

Clear. Thank you.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So that for the market share part, if you want to answer the

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Naranja Ex, Pedro, you can see an increase in the margin, the financial margin and an improvement in the cost of risk. Basically, these are the two main drivers and they have been growing both in number of clients and in loans origination. Typically for Naranja when interest rates go down, their cost of funding improves more than the interest rate they can charge for personal loans and credit card financing. Typically, there is a margin expansion in their case is different from the bank. And the cost of risk improved basically because in the fourth quarter, they had changed the model for expected losses.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Basically, had a model that took into account or used variables that were more related with credit card financing. And as they were growing significantly with personal loans, they had to adapt and change that model. That's why the cost of risk went down from levels of I don't remember exactly from 2019 to 2015 or so. So the profitability of Naranja should be good for the full year. What should happen is that the weight of the bank should be recovering.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

It's very unusual that Naranja has a higher net income than Banco Alize.

Pedro Leduc
Equity Research Analyst at Itau BBA

Very clear and complete answers. Thank you both.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

You're welcome, Pedro.

Operator

Our next question from Rodrigo Nistor with Latin Securities. With loan growth consistently outpacing deposit growth, moderation in loan growth seems inevitable. How does management envision real loan growth settling post transaction period say by early 4Q twenty six?

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

Well, of course hi, Rodrigo. The first comment I can say is that when you look at the loan to deposit ratio, typically it's very different between pesos and dollar. Big numbers in pesos 90 percent, in dollars 50 percent. We are seeing different growth rates from deposits and loans, but of course the stocks are different. So we must look at the absolute amount.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

In certain months, there could be more shortage, let's say, of funding. And that is why the bank has been issuing different bonds recently in pesos in dollars. Typically in dollars, we sold the dollars and we lent pesos and we cover the dollars with the forward. So we are looking at different ways to have that demand satisfied. The idea is to keep on growing and that's why we are keeping the guidance of 50% loan growth this year.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

Yes. I mean just to add to that, I mean, of course, we are doing going after institutional deposits like commercial paper, but also trying to focusing a lot in deposits, which is the core funding and the more safe funding. Well, we are seeing of course that the loans are growing faster than deposits and that at some point will change because that not for Galicia, but for the fine local financial system could be a constraint in the lending growth. But we believe that even though the if the pie of deposit doesn't grow, we believe that we are in a very well position to capture more market share in deposits with our size and our reach to different segments and customers. We believe that we can do a good job there.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

And if the pie of low deposit doesn't grow, we can get more market share and be able to continue growing our lending. So that's a focus of all the business lines to get more deposits, as you know, as the raw material to continue growing lending. And again, we believe that we are in a good position to achieve that and be able to maintain the lending growth as projected.

Operator

Next question from Matthias Cataruzzi. With inflation decelerating, how do you see net interest margins evolving? Are there specific repricing strategies or asset mix shifts planned to help protect margins going forward? Deposits declined 5% quarter on quarter in real terms. Was this a seasonal effect or driven by a competitive pressure?

Operator

What strategies are in place to recover deposit momentum? And do you expect the recent dollar related measures announced by enhance your dollar business and support deposit growth?

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

I mean deposits as I said deposits are growing. That sounds impunctual. We are not seeing deposits reduction in general. And if you see in the bank, I think that's group what you are talking about. But I mean, really what we are seeing is deposits growing lower than loans, but not that we are losing market share in deposits nothing like that.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

So we are in the bank. Are not seeing that happening that could be something again temporal. But so we are continuing to focus as I said before on our tours and we're posting in growing deposit because we want to continue growing lending. About talking about margins, I mean, we as I said, what you see here in margin reduction, yes, is an important reduction in government bonds quarter over quarter. If you go that it was an important income for banks, of course, but that March, April we already start to see an increase or a recuperation on our trading portfolio.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

And we are a fair more or less of what we lose in the first quarter it's already recovered between April and May. But if we excluded government bonds investments, I think as I said before, we are seeing our margins in pesos for example being flat quarter over quarter. And if we exclude government lending in pesos, we are seeing an increase of 200 basis points between fourth quarter and third quarter. So we are seeing high demand in lending. So really the lending rate has not gone down.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

In fact, in some products lending rate has gone up in the last months and it may continue happening if the lending demand continues at this level. So margin, we may see some margin reduction in the government securities side. That depends of course also the volatility of Argentina and the sea of how each of the bonds are trading. But on the lending side, we are seeing a margin stabilization and in some products some slight increase going forward.

Operator

Our next question from Clemente Herrera with Falcon Asset Management. How do you see ROE evolving this in the following years? You are well capitalized, so maybe you are seeing more space there.

Gonzalo Fernández Covaro
Gonzalo Fernández Covaro
CFO at Grupo Financiero Galicia

I mean for Arroyo as I said this year, think we talked about 12%, fourteen % in the guidance. We see that to start to go up again for the future years, I mean 26%, twenty seven Our intention and our target is to continue maybe towards a 20% ROE stable 20% ROE maybe 2017% next year and 2020 the following one. That's a trend we want to but we believe that our consider our size, we should be trading or operating at a sustainable 2020 ROE. That should be of course something that will go in stages after we finish the integration this year and start capturing all the value from the HSBC acquisition and then finish with all the synergies. That would be my the evolution of the ROI that we at least are targeting for the future.

Operator

Thank you. The question and answer section is over. We would like to hand the floor back to Mr. Pablo Fivida for the company's final remarks.

Pablo Firvida
Pablo Firvida
Investor Relations Officer at Grupo Financiero Galicia

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

Operator

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

Executives
    • Pablo Firvida
      Pablo Firvida
      Investor Relations Officer
    • Gonzalo Fernández Covaro
      Gonzalo Fernández Covaro
      CFO
Analysts
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Key Takeaways

  • Grupo Financiero Galicia reported a 63% decline in first-quarter net income to Ps.146 billion, driven by a 66% drop in net interest income, a 65% fall in trading bond gains and an 80% slump in FX results.
  • Management lowered its 2025 ROE guidance to 12–13% from prior targets, but maintained ambitious growth goals of 50% real loan growth and 30–40% deposit growth for the year.
  • The bank’s non-performing loan ratio rose to 2.75% (up 66 bps YoY) in Q1, led by retail delinquencies, though executives expect a further spike in coming months before stabilizing or improving by year-end.
  • Regulatory capital remains strong at a 21.1% total capital ratio (Tier 1 of 20.8%), and will be bolstered to 25.3% once the GaliciaMas integration (former HSBC Argentina) completes by June.
  • Digital lender Naranja X delivered a ~30% ROE in Q1, benefiting from margin expansion as funding costs fell and from model updates that cut its cost of risk.
AI Generated. May Contain Errors.
Earnings Conference Call
Grupo Financiero Galicia Q1 2025
00:00 / 00:00

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