Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's First Quarter 2021 Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in listen only mode during the company presentation. After company remarks are completed, there will be a question and answer session. At that time, further instructions will be given.
First of all, let me stress that some of the statements made during this conference call may be forward looking statements within the meaning of the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under U. S. Federal securities law. 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. Additional information concerning these factors is contained in BBVA Argentina's Annual Report on Form 20F for the fiscal year 2020 filed with the U.
S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Gallardo, CFO Mrs. Ines L'Nouse, IRO and Ms.
Belen Fercade, Investor Relations. Ms. Forcade, you may begin your conference.
Good morning, everyone, and welcome to BBVA Argentina's First Quarter 2021 Earnings Conference Call. Before we begin our formal remarks, let me remind you that certain statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. For a description of these risks, please refer to our SEC filings and earnings release, which are available at our Investor Relations website, ir.bbba.com. Ar. Speaking during today's call will be Inesla Nuce and Ernesto Assarlo, our Chief Financial Officer, will be available for a Q and A session.
Please note that starting January 1, 2020, as per Central Bank Regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For risk of comparability, 2020 figures have been re restated to reflect the accumulated effect of inflation adjustments for each period through March 31, 2021. I would also like to add that following the application of Central Bank's Communication A7211, as of this earnings release, we are again able to present figures of the last 5 quarters expressed in current currency. Now, let me turn the call over to Ines.
Thank you, Belen, and thank all of you for joining us on the Q1 2021 conference call. Let me start by commenting that despite some significant signs of economy recovery, uncertainties remain in regards to the resolution and negotiation of the national government with the IMF and the economic plans linked to the result of such arrangements. The evolution of the pandemic, the additional measures that may be taken by the government and the next midterm election further complicate the current situation. In this context, recitals of the financial sector is critical to be able to adequately and safely provide banking products and services to society. BBVA Argentina has proven this adaptive capacity through a modern branch network and an efficient and safe operating scheme from a sanitary point of view as our retail and wholesale clients continue to adopt the use of digital channels to access to our products and services.
In line with this, the digitalization of our offer has evolved in such way that at the end of March 2021, the penetration of our digital clients reached 73% from 68% in the prior year, while that of mobile clients reached 62% from 56% a year before. In terms of responsible banking, BBVA Argentina keeps working towards a sustainable model, supporting responsible business actions regarding inclusion, financial education and environmental protection as part of its compromise with the country. I will now comment on the bank's Q1 2021 financial results. BBVA Argentina Q1 2021 net income, including inflation adjustment effects, totaled ARS 3,000,000,000, growing 821.6 percent quarter over quarter and 50.8% year over year. Quarterly results are mainly explained by: 1, an adequate operating cost management 2, the reduction in loan loss allowances 3, the recovery of abrogation recorded in 2017 in the frame of the legal action filed by the bank to declare unconstitutionality of the provisions that prevented the application and inflation adjustment for the 2016 fiscal period recorded in the income tax line and 4, the negative impact of inflation during the quarter.
This being said, the 821.6 percent quarterly variation is mainly affected by: 1, the adjustment in the valuation of Prisma introduced retroactively in the Q4 2020 results in the line net income from measurements of financial instruments at fair value to P and L, which were required by the Central Bank subject to the announcement of the Q4 2020 financial statements and 2, the retroactive application of modifications and exposure of monetary results stated in Communication A7211 for the financial statements ended in December 31, 2020. Based on the privileges described in the Q1 of 2021, BBVA Argentina presented a positive real return on equity of 10 point 5% and a real return on assets of 1.6%, proving the bank's retirements. In the quarter, net interest income totaled ARS 21,500,000,000, 2.3% lower than the results posted in the Q4 2020 and 8.1% lower than the results posted a year ago. In the Q1 of 2021, the greater interest income does not make up for the increase in interest expenses, mainly due to the regulation inactive and passive rates to greater expenses generated by time deposits and to a lesser extent by overwhelming time deposits driven by a boost in quarterly inflation.
During the Q1 of 2021, interest income totaled ARS 36,700,000,000, 1.5% higher quarter over quarter and 4.5% above Q3 2020 interest income. Quarterly increase is mainly explained by a 16.6% increment in interest income from credit cards and a 26.4% growth in income from third UBA adjustments. This last explains the acceleration of inflation during the Q1 of 2021, boosted by income from public securities linked to such indexes. The increase was partially offset by a 5.8% fall in income from government securities as the effective rate from interest gain through Central Bank's liquidity bills did not compensate the quarterly inflation rate additional to a 13.7% fall in income from overdrafts. Increased income from loans and other financing totaled ARS 17,700,000,000, growing 0.5% quarter over quarter.
This is mainly explained by a 16.6% increase in credit cards and a 5.3% increase in pledged loans. The increment was offset by a fall in other loans by 2.2%, which include part of the productive investment credit lines implemented by the Central Bank. Inova dropped by 13.7% and in discounted instruments by 3.8%, the later driven by lower commercial activity. Interest expenses from time deposits and investment accounts explained 79.2% of total interest expenses versus 78.9% in the previous quarter. Interest from time deposits grew 7.7% quarter over quarter and 30.4% year over year.
Net fee income as of the Q1 of 2021 totaled ARS 3,400,000,000, growing 6.1% quarter over quarter and 25.4% year over year. In the Q1 of 2021, fee income totaled ARS 7,700,000,000, contracting ARS 9.77 quarter over quarter and 0.3% year over year. The quarterly fall is mainly explained by the income from credit cards in part due to the seasonal effect and to the implementation of the new reward program. Lower expenses in the quarter are partially driven by savings in promotions and client acquisition costs compared to what was expended in the Q4 of 2020 affected by seasonal taxes. During the Q1 of 2021, personnel benefits and administrative expenses totaled ARS 11,200,000,000, increasing 2.0% compared to the Q4 2020 and falling 2.5% compared to the Q1 of 2020.
Personal benefits increased 6.4% quarter over quarter and decreased 7.8% year over year. This is partially explained by salary increases arranged through collective bargaining agreements, additional to borrower remuneration payments. As of the Q1 of 2021, administrative expenses fell 2.5% quarter over quarter and increased 4.1% year over year. The quarterly fall is mainly due to savings in Ironman Transportation Services, driven by the lower commercial activity. The accumulated efficiency ratio as of the Q1 of 2021 was 72.5 percent above the 56.8% and the 59.3% reported in the Q4 of 2020 and the Q1 of 2020 respectively.
This increase is especially affected by a fall in financial income and the acceleration of the inflation during the Q1 of 2021. Excluding inflation adjustments, considering the income from the monetary position line item, the Q1 2021 accumulated efficiency ratio would have been 50.1%. In terms of activity, private sector loan deal terms as of the Q3 of 2021 totaled ARS 296.8 billion, decreasing 9.5% quarter over quarter and 7.7% year over year. Loans to the private sector in pesos decreased 10% in the Q1 of 2021 and remained flat in the year with a 0.9% minor increase. Loans to the private sector denominated in foreign currency fell 5.4% quarter over quarter and 45.0% year over year, mainly driven by the contraction in the balance of loans in foreign currency.
These loans measured in U. S. Dollars fell 13.5 percent quarter over quarter and 61 0.4% year over year. The depreciation of the Argentine pesos versus the U. S.
Dollar was 8.5% quarter over quarter and 29.9% year over year. BBVA Argentina consolidated market share on private sector loans as of March 2021 reached 8.23% from 8.35% in the Q1 2020. Retail loans fell 5.7% quarter over quarter and grew 8.1% year over year. During the quarter, the greatest decline is seen in credit cards with a 7.5% decrease. Commercial loans contracted 14.8% quarter over quarter 24.7% year over year, mainly due to a seasonal deceleration of commercial activity.
This being said, decline in both retail and commercial portfolios are mainly impacted by the effect of inflation in the Q1 of 2021, which reached 13%. In nominal terms, the retail portfolio and the total loan portfolio increased 5.0% and 2.2% respectively, reversing the trend compared to the inflation adjusted figures. On the other hand, also in nominal terms, the commercial portfolio contracted 1.8% pushed by lower activity. In the Q1 of 2021, gross loans to deposit ratio was 58.9 percent from 70.3 percent a year ago. In the Q1 of 2021, asset quality ratio or NPL was 1.72%, while the coverage ratio was 275.22% compared to the 1 point 40% NPL and to the 311.95 percent coverage ratio recorded in the Q4 2020.
The evolution of these ratios reflect: 1st, an increase in the retail non performing portfolio
due to
deferred credit card payments related to the expiration of COVID-nineteen measures over these loans, which passed to State 3 in January. 2nd, an improvement in the commercial non performing loans in contract to those recorded in the Q4 2020. And 3rd, a decline in write off driven from the decrease in retail non portfolio loans in the prior 6 months, either required for a non performing loans to be written off. As of the Q1 of 2021, NPL is still positively affected by the temporary flexibility in Central Bank regulations regarding debt reclassification during COVID-nineteen pandemic, which extends grace periods in 60 days before a loan is classified as non performing and suspend the mandatory reclassification of clients that have an irregular performance with other institutions, and a regular performance with the bank. Cost of risk reached 2.47% lower than the Q4 2024.99%.
This is mainly explained by the reduction in loan loss allowances in the Q1 2020 1, additional to the contract with the Q4 2020 that included losses for the passing to Stage 3 of a particular company and the change in parameters in impairment models. In the Q4 of 2021, exposure to the public sector, excluding Central Bank Instruments, measured as a percentage of total assets, reached 6.4% above the 5.6% recorded in the previous quarter. On the funding side, non financial private sector deposits as of the Q1 of 2021 totaled ARS 501 point 1 billion, decreasing 6% quarter over quarter and increasing 8.3% when compared with the Q1 of 2020. Private non financial sector deposits in pesos totaled ARS356.4 billion, falling 6.3% compared to the Q4 of 2020 and growing 18.8% compared to the Q1 of 2020. The quarterly decline is mainly explained by the fall in site deposits, especially checking accounts, interest bearing and non interest bearing accounts and savings accounts.
This was partially offset by an 8.1% increase in tight deposits. Private non financial sector deposits in foreign currency expressed in pesos fell 5.2% quarter over quarter and 11% year over year. Measured in U. S. Dollars, this deposit fell 13.3 percent quarter over quarter and 37.6 percent year over year.
Variations are mainly affected by the effect of inflation during the Q1 of 2021. In nominal terms, total deposits, site deposits and time deposits grew 6.2%, 19.4% and 0.2%, respectively, reversing the trend in inflation adjusted figures in certain cases. As of March 2021, BBVA transactional deposits, including checking and saving accounts, representing 62.9% of total deposits from 66.6 percent a quarter ago. BBA Argentina consolidated market share on private sector deposits as of March 2021 reached 6.90% from 6.80% a year ago. In terms of capitalization, BBVA Argentina continues to show strong policy indicators, accounting and excess capital of ARS69.2 billion, entailing a total regulatory capital ratio of 22.4 percent and a Tier 1 ratio of 21.7%.
The bank's aim is to make the best use of this excess capital. The bank's liquidity ratio in pesos and dollars remained healthy at 65.8% 87.7% of total deposits as of March 31, respectively. Last but not least, on April 20, 2021, the General Shareholders Meeting approved the distribution of cash dividends for ARS 7,000,000,000 equal to ARS11.43 per share, which implies a 58% payout ratio. The distribution is subject to Central Bank's prior authorization, which has not been granted yet. As of the date of this release, BBVA Argentina has ARS 21,500,000,000 accumulated in dividends pending distribution.
This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.
We will now begin the question and answer Our first question comes from Gabriel Nobrega with Citigroup. Please go ahead.
Hi, everyone. Good afternoon and thank you for the opportunity to ask questions. So during the first question sorry, so during the Q1, we saw that the NPLs started to deteriorate. I understand that the bank has a soft guidance of consuming the excess coverage throughout the year, which you build over 20 20. But still, given uncertainties surrounding Argentina with midterm elections coming up, IMF agreement as well, I just wanted to understand if at this moment, is there any segment of your loan book that maybe isn't starting to worry you?
Or is everything on a normal pace and we should continue to see the consumption of coverage over the coming quarters? And I'll ask a second question afterwards. Thank you.
Hi, Gabriel. Nice to speak with you. Yes, as you mentioned, you saw some peak in the Q1 of the NPL. Basically, as we mentioned in the press release, it's the waivers that were implemented by the COVID measures on the credit card business sell the first one sell in January. So you had some peak in January on the retail portfolio.
Then the situation stabilized in February March. If we would exclude the Central Bank waivers, our NPL as of March would be 2.5% that is full IFRS nine. And we are projecting towards the end of the year assuming the full waivers are removed from the NPLs to reach around 3.62%. Just to mention, our deferred book is only 11% of our book. It has been decreasing.
It's mainly credit card business. And we are quite comfortable in the way the NPL is performing. Regarding coverage, basically, you saw a decrease in coverage, mainly it's that had to do with the increase of the denominator, the NPLs, as I mentioned before, and reducing allowances and allowances. We are projecting our coverage towards the end of 2021 at around 147%. I think that answers your question, sir.
Yes, Niz. Thank you very much. This was very clear. And as for my second question, we saw the reversal of the tax provisions on which you generated in 2016. And so I just wanted to understand if you have already done all of this reversal, are there maybe more tax reversals planned throughout the year?
How should we think of your effective tax rate going forward as well? Thank you.
Okay. That was a particular one. As you know, the bank presented sort of lawsuit to the state for and we were obliged by the Central Bank to provision that less payment that we did for the income tax 2016 that was accounted in 2017. And with a positive effect from the demand, we were able to reverse that provision and impacted in the income line tax. So that's the main effect.
It's a one time effect. So you shouldn't see more of those during 2,000 during this year. It's difficult to predict the income tax. I know it's a difficult line to model. Probably, you should work around 38%, but a lot of what happens with the income tax line is going to be related to changes in the ABSA recommendation.
As you know, today our income our tax is 30% and there is a possibility that that income tax goes to 35% is something that's being discussed in the Parliament. So depending mainly on what happens with that, it's going to be at the end of the day the income that you should calculate for your model.
All right. Thank you very much. This is very helpful.
You're welcome.
The next question is from Alonso Garcia with Credit Suisse. Please go ahead. Alonso, your line is open. Do you have it muted on your end? Moving on, our next question is from Carlos Gomez with HSBC.
Please go ahead.
Hello, Ines. Good morning. I want to follow-up on the reversal of the tax provision, EUR 1,200,000,000. So what is the exact situation of that case? Have you succeeded?
And that is the reason why you can reverse it, so you will not have to pay this 1.2 billion in the future. And whatever solution there was that we applied to other fiscal years or to other companies. We would like to have a little bit of clarity over there. And second, on the dividends, if you could repeat what you spent in the call. So you have approved the dividend a little bit MXN 6,000,000,000 per share.
Can you repeat how much you have on the balance sheet? And just to clarify, the one that you have approved is not yet on the balance sheet, is not has not come out of equity? Thanks.
Carlos, nice to speak to you. Let me see if I understood your questions correctly. Let me start with the second question on dividends. We still have 2 pending dividends from 2019 that are already on the liability side for ARS 14,500,000,000. Those are pending of distribution.
And on the April ML Shareholders Meeting of this year 2020, an dividend of ARS 7,000,000,000 was declared. And you will see it as of the second quarter getting out of the equity and passing into the liability side.
So those are the So to clarify yes, to clarify completely. So right now ARS 40,500,000,000 are pending distribution and are not included in their equity in the book value and this new ARS 7,000,000 are still in the book value, but they will not be after the second quarter.
Correct. In the second quarter, you're already going to see it in the liability side because the dividend has been declared. Okay.
But has it been declared, it has not been distributed to the shareholders, so the shareholders are still entitled to that money when they dispute?
Correct. Exactly. It has been declared, but we are we need the authorization of the Central Bank to be able to distribute.
Thank you.
Okay. And regarding your other questions on the tax side, as you know what we did the bank did was for the 2016 income tax that had to pay, the bank decided because we saw it's a confiscatorio, the tax that was being paid was confiscatory. The bank decided to pay less adjusting the amount that had to pay adjusted by inflation. So the Central Bank obliged the bank when we had to pay that in 2017, obliged to do a provision. So we had a neutral effect for non payment because we were going into a lawsuit with the state in 2017.
That lawsuit had a positive effect this year in 2021. So we were authorized by the Central Bank to reverse that provision. So that was a one time effect. We did the same for the income tax we had to pay for 2017 2018 with our respective provisions in the following years, but we have no news regarding those the legal action continues its course, but it's difficult to predict when exactly we're going to have results on those losses. Obviously, having a positive effect on the 2016 lawsuit gives us some it's good news for us because we had a positive effect.
Now we need to see what happens with the 2017 and 2018 lawsuit.
But we expect to have a positive outcome. We expect to have a positive outcome from those. From those 2. And again, the resolution has been positive towards you at what level of the court? Is this at the tax authority or at the It's actually closed.
It's the final sentence. The income of the association. Yes, exactly. They cannot. They decided to not appeal.
Showing no further questions. This concludes the question and answer section. At this time, I would like to turn the floor back over to Mrs. Lanouza for any closing remarks.
Thank you very much for your time. This concludes our call today and look forward to answer your questions if you have. Thank you.
Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.