Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's 3rd Quarter 2020 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's presentation. After company remarks are completed, there will be a question and answer section. 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 20 F for the fiscal year 2019 filed with the U.
S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Gallardo, CFO Mrs. Ines L'Annuse, IRO and Mr.
Javier Kelly, Investor Relations Manager. Mr. Kelly, you may begin your conference.
Hello, everyone, and welcome to the BBVA Argentina earnings conference call for a discussion of our Q3 2020 results. Before we begin our formal remarks, allow me to remind you that certain statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectation and belief 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 filings with the SEC and our earnings release, which are available at our Investor Relations website, ir.bbva.com. Speaking during today's call will be Inet La Nuce. Also joining us today is Ernesto de Assardo, our Chief Financial Officer, who will be available for the Q and A session.
Please note that starting January 1, 2020, as per Central Bank regulations, we have begun reporting results applying hyperinflation accounting in accordance with IFRS Rule IAS 29. For ease of comparability, figures for the quarter of 2019 have been restated and by IAS 29 to reflect the cumulative effect of the inflation adjustment for each period through September 30, 2020. Now let me turn the call over to Ines.
Thank you, Javier, and thank you all of you for joining us on the Q3 2020 earnings conference call. We hope you and your beloved ones are healthy and safe on these challenging times. From the beginning of the pandemic, BBVA Argentina has prioritized its clients and employee safety, both in central offices as in branch network. The bank has provided its clients through its traditional and digital channels, not only its wide range of products, but also all possible support that has surged through the health emergency regulation implemented by the Argentine government. Regarding digital transformation, the penetration of digital clients reached 71% from 69% and the penetration of mobile clients reached 59% from 57% in the prior quarter.
Moreover, digital branches have been launched in October 2020, combining several features between human capital and structured facilities to promote client self-service, aiming to digitize and migrate clients to remote channels. In terms of responsible banking, PDVA Argentina keeps working towards a sustainability model, supporting their responsible business actions regarding inclusion, financial education environmental protection as part of its compromise with the country. Meanwhile, the bank closely monitors the impact of the pandemic over its business, financial conditions and operating results in the aim of anticipating possible actions to optimize value for its shareholders, and it keeps the solidity it has widely developed for as long as the volatility and uncertainty as seen during 2020 remains. I will now comment on the bank's Q3 2020 financial results. All figures mentioned here in fact are measures in current currency at the end of the reporting period, including the corresponding financial figures for the previous periods provided for comparative purpose unless otherwise noted.
PBA Argentina's Q3 2020 net income, including inflation adjustment effect, totaled ARS 2 point 83,000,000, 2.9 percent higher than the ARS 2,750,000 posted a quarter ago and 65.4 percent lower than the ARS8.19 billion posted a year ago. The quarter over quarter increase is mainly explained by a lower income tax level base, additional to temporary differences between fiscal and accounting inflation adjustment regulations. The year over year decrease is partially explained by the impact of the pandemic and the sharp contraction of the interest rate as a consequence of the monetary policy implemented by the government during 2020. In the 3rd quarter, net income from write down of assets at amortized cost and at fair value through other compressive income reflected a loss of ARS 4 point 0,000,000,000, 79.3 percent greater than the reported in the prior quarter. 72% of the result in this line is mainly explained by the accumulation inflation adjustment in other comprehensive income of the remaining position in U.
S. Dollar linked notes linked with the bank exchange in the voluntary swap offered by the National Treasury on July 17, 2020. In the quarter, net interest income totaled ARS 16,600,000,000, ARS 2,600,000,000 lower than the result posted in the Q2 of 2020 and 25 point 6% lower than the result posted a year ago. The decline is mainly explained by an increase in the average minimum rate of time deposits and of interest bearing checking accounts in addition to a switch in deposit mix from site deposits to time deposits. All of these which offset the greater income derivate from a higher position in Central Bank Leliqs.
Income from government securities increased by 34.1% compared to the Q2 of 2020 and fell 38.4% compared to the Q3 of 2019. This sequential increase is explained by an increase in the Eneliq position as a consequence of the increment in time deposits combined with Central Bank regulations that enable a higher excess lead position in line with what was granted in time deposits at minimum rate. Interest income from loans and other financing totaled ARS 14 800,000,000, decreasing 3.3 percent quarter over quarter. This is explained mainly by the contraction in overdraft, a direct consequence of the economic situation, partially offset by the pickup in credit card transactions and loans to the pre financing and financial exporters, mainly in pesos. In Q3 2020, interest from time deposits represented 86.4% of the bank's total interest expenses, increasing 48.5 percent in the quarter.
Net fee income amounted to ARS 3 0.0 billion, 10.2 percent lower quarter over quarter. This contraction is explained by fees from credit card consumption received during the Q2 and in a lower extent by the slight pickup in expenses as a consequence of the surge in the activity. If fees from credit card consumption received in the 2nd quarter were excluded, net fee income in the 3rd quarter would have increased 27.7 percent quarter over quarter. Net income from financial instruments at fair value totaled ARS886 1,000,000, decreasing 34.8 percent quarter over quarter. This is explained by the lower volume in income from government securities explained by the reduction of exposure to Leliqs during the last month of the quarter.
In the Q3 of 2020, FX gain, including foreign currency foreign transactions, totaled ARS 1,600,000,000, increasing 0.5 percent quarter over quarter due to an increase in results from purchase and sale of foreign currency derived from a surge in activity. Moving on to the expenses during the Q3 of 2020, personnel and administrative expenses totaled ARS 8,900,000,000, increasing 6 0.5% quarter over quarter and decreasing 12.1% year over year. Personal benefits extended 7.3% in the quarter, reaching ARS 4,600,000. This increase is mainly explained due to the increment in salaries as a consequence of the Colombia bearing agreement with labor unions on July 16, 2020. Administrative expenses grew 5.7% in the quarter, mainly explained by an increment in ARMON Transportation Services driven from the surge in activity and increasing FX market restrictions in force in September, partially offset by savings in net reregistered services and rentals.
The accumulated efficiency ratio of the Q3 of 2020 was 58%, above the 54.7 percent and the 43.9% reported in the second quarter of 2020 and in the Q3 of 2019, respectively. The increase is explained by a higher percentage increment of the expenses than the income, which has been mainly affected by the increase in financial expenses. Excluding inflation adjustments adjustments included in the line, income from monetary position and net income from write down of assets at amortized cost and at fair value through OCI, the accumulated efficiency ratio as of the Q3 of 2020 reached 46.2%. In the Q3 of 2020, other operating expenses contracted 11.2% quarter over quarter due to in the turnover tax for the recognition of the advance payments of this tax for 2020 in the 15% of the 5. On the other hand, there is also a reduction in other operating expenses as a consequence of the release of legal provisions.
In terms of activity, the bank financing to the 5X sector totaled ARS658.6 billion, decreasing 4.1 percent quarter over quarter and decreasing 10.6% year over year, both in real terms. BBVA Argentina consolidated market share over the private sector loans as of September 2020 reached 8.25% from 8.13% in Q3 2019. Loans to the private sector in pesos remained flat quarter over quarter and increased 12% in the year. Dollar denominated loans decreased 22.8% quarter over quarter, measured in pesos and 29.3% measured in dollars, mainly driven by the contraction in the balance of loans in foreign currency. Regarding the retail portfolio, including mortgages, pledge, consumers and credit card loans, these have increased 7.3% quarter over quarter and fell 1.5% year over year.
In the quarter, the greatest increase are reflected in pledge loans and credit card loans, the later boosted by Aurora Dose and Aurora 18 program. Commercial loans, including overdrafts, discounted instruments, leasing, foreign trade and other loans, fell 15.3% quarter over quarter and 19.9% year over year. The quarterly decrease is mainly explained by a 41 assets. This was partially offset by a 15.7% increase in discounted instruments and a 2.2% increase in company loans. As of September 30, the bank has granted ARS 47,900,000,000 in COVID-nineteen supported credit lines.
In the Q3 2020, gross loans to deposit ratio was 66% compared to the 79% a year ago. As of September 2020, asset quality measured as total nonperforming portfolio over total portfolio reached 1.16%, the lowest in the last 12 months. This ratio was positively affected by a temporary flexibility in BCRI regulations regarding debt classification during the COVID-nineteen pandemic, which extends grace periods in 60 days before a loan is classified as non performing and suspends the mandatory reclassification of clients that have been in irregular performance with other institutions, but our regular performance with the bank. These waivers are in effect until December 31, 2020. The coverage ratio allowance over total non performing portfolio increased to 355.26 percent in the Q3 of 2020 from 269.38 in the Q2 of 2020.
This is explained by a decrease in nonperforming loans, which is greater than the increase in allowances as a consequence of the implementation of impairment models and the continuing effect of waivers in 4Q BC regulations regarding debt classification. Cost of risk loan loss allowances over average total loans reached 137%, lower than the 4.27% recorded in the Q2 of 2020. This is mainly explained by an adequate evolution in credit quality, especially in the commercial portfolio. Allowances for the bank in the Q3 of 2020 reflect expected losses driven by allocation of the IFRS 9 standard as of January 1, 20 21, expect for debited instruments issued by non financial government sectors, which were temporarily excluded from the scope of such standards. In the 3rd quarter, exposure to the public sector, excluding Central Bank Instruments, measured as a percentage of total assets, reached 4.3%, above the 3.3% recorded in the prior quarter.
Our total exposure to the public sector, excluding Central Bank notes, was ARS25.1 billion above the ARS19.2 billion in the prior quarter. It is worth noting that on July 17, the bank participated in the voluntary swap offered by the National Treasury and swap its remaining position in sovereign U. S. Dollar linked in the exchange of bundle of sovereign bonds in pesos adjusted by inflation, bond sale, maturing in 2023 2024. This left debanked portfolio virtually free of U.
S. Dollar and U. S. Dollar linked denominated securities. On the funding side, private sector deposits in the Q3 of 2020 totaled ARS393 1,000,000,000, remaining flat quarter over quarter and growing 6% when compared with the Q3 of 2019.
Private sector deposits in local currency were ARS 2 79,000,000,000, increasing 2.2% quarter over quarter and 33.8% year over year. This is mainly explained by the strong growth in time deposits, especially of investment accounts and the lesser extent by the growth of checking accounts. Private sector deposits in foreign currency decreased both measured in pesos and in dollars. Toward the end of the quarter, U. S.
Dollar deposit withdrawal increased as a consequence of the increased restrictions over the FX market. After operability was established under new Bank regulations, foreign currency deposit was slowed down, returning to level of 30% to the previous month. As of September 2020, BBVA transactional deposits, including checking and saving accounts, represents 63.1% of total deposits from 66.4 percent a year ago. BBVA Argentina consolidated market share of private sector deposits as of September 2020 reached 6.48%. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators, accounting an excess capital of ARS61,900,000,000, entitling a total regulatory capital ratio of 23.3 percent and a Tier 1 ratio of 22.6 percent.
The bank's aim is to make the best use of the excess capital. The bank's liquidity ratio in pesos and dollars remained healthy at 51.1 percent and 86% of total deposits as of September 30, respectively. Last but not least, on November 20, the General Extraordinary Shareholders Meeting approved a distribution of a complementary cash dividend for the sum of ARS12 1,000,000,000 through the partial write off of the optional reserve for future distribution of earnings in the aim to increase the ARS 2,450,000,000 cash dividend approved in the Shareholders Meeting of May 15, 2020, subject to B Theory A approval. With this additional dividend, the payout ratio would reach 46%. 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 session. Our first question comes from Gabriel Nogerga with Citi. Please go ahead.
Hi, everyone. Good afternoon and thank you for I actually have two questions. The first is on the level of provisioning. We saw a large decrease in this quarter. I understand that it is because you were extremely comfortable.
Your coverage ratio is well above 300%, if I'm not mistaken, this is a new historical high. And then so I wanted to understand, even though you still don't have a clean picture of the NPLs due to the waivers from the Central Bank, I would just like to understand, if you believe that you are going to keep making the same level of provisioning for the coming quarters? And I'll ask a second question afterwards. Thank you.
Hi, Gabriel. Nice to talk to you. Okay. Yes, as you mentioned today, we have a question mark on when the waivers of the Central Bank will be taken out. So regarding our more asset projection for NPL, we do not increase this waiver.
We are projecting an NPL to be around 1.90% by the end of 2020 and going a little bit higher, even more higher in 2021, reaching levels of 2.9% or around 3%. As you mentioned, the level of provisions, we feel very confident, is very high. You should see an increase in provisioning in the 4th quarter, mainly by the change in the variables affecting the IFRS nine model. So that and also considering that your NPL will decrease sorry, will increase your NPL in the Q4 should increase mainly because of the corporate portfolio that should make the coverage go a little bit further down in by the end of 2020. For 2021, I mean, it's more a question we still have a question on how NPLs will perform.
In fact, we know they should get a little bit worse. The waivers will, at the end of the day, define how the ratio behaves. But yes, provisioning should increase in the Q4, but again, mainly because of the change in the IFRS 9 projections.
Okay, perfect. And then as for my second question, it's actually on your net interest income. So we have seen that since the Q1, this has decreased a lot. Why do I understand that there is an effect here from the increase in the bundler rate? It's still a significant decrease versus your peers.
So if you could just maybe comment what's going on here, what's maybe being different than what the other Argentine banks were seeing? And also, as we have as we're starting to see the Central Bank increasing interest rates again, what do you think should be the trajectory for your net interest income in the Q4? Thank you.
Okay. For the Q4, we believe you should you probably see an increase in the net interest income, mainly because activity should start to increase, but that also is a little bit increase in slightly due to the effect of reactivity with increasing cost of Fancro. As you mentioned also the Fanc deposits are increasing. We are paying a minimum. So that increase in activity, which that would increase our interest income increase, will be a little bit compensated by the increase of cost of funds.
Going more towards 2021, we are also expecting activity to increase, probably going more to similar levels as 2019. But again, we should have that we will see the pressure on the cost of funds, no? And that probably will affect the yields in loans. It's a question of mix. And also going more into the general activity of the bank, which is lending, it is more tied to the pickup in the demand that we saw in the last quarter, the effect of the subsidized loans that were picking up and now they're starting to decrease again despite we're seeing some pickup in the retail business.
Thanks, And if you just allow me a follow-up here since you talked about this demand question. We saw the new regulation for the subsidized loans at, I think, 30% for SMEs. Do you expect to start offering a lot of these? And maybe could this lead to a pickup in demand for the Q4 and for 2021 as well?
It's difficult to predict, Jose. We have landed, for example, the subsidized line of 24%. Now is starting to reduce that demand, but also because we are obliged to land this 7.5% of the deposit base. As of November 20, we have already granted ARS5.9 billion in this new line, which is not you have to place it. It's not opposite.
So basically, the demand for this type of loans is coming from that side. Going forward, we need to see the economic conditions to become more stabilized, and there we should see a pickup in loan demand.
Perfectly clear. Thank you so much.
The next question is from Alejandra Aranda with Itau. Please go ahead.
Hi, Ines. Could you tell us the percentage of loans reprogrammed and if you could discriminate that between credit cards and the rest of your portfolio? And remind me, you said what was the percentage of loans at a subsidized rate that you already have on your portfolio?
Okay. The support line to make it clear, the support line for the 24% zero interest rate and all those lines that were implemented for COVID represent MXN 47,600,000,000. Now this new regulation, the compulsory credit line, which is Communication 7,140, As of November 20, we have already granted MXN5.9 billion. So the lines that were granted for the COVID or other COVID lines now are going into the compulsory credit lines. Regarding the deferred loans from the total loan book, they represent approximately 17% of the total book, and it's mainly composed by the credit card business.
Okay, perfect. And two more questions, if I may. In terms of fees, could you give us some color on what to expect for the next year and for 4Q and also for growth in loans and deposits?
Yes. Regarding fees on the 4th quarter, you should see them going a little bit further down because the activity will start to increase. So you should see acquisitions cost starting to increase. You already saw some of that in the 3rd quarter despite if you had excluded that one time gain we had in the second quarter, you would have seen an increase in fees. Going forward to 2021, again, tied to the increase in inflation sorry, including the activity, you could see you are going to see some increase in some products, commission for some products, particularly credit cards and safety boxes.
We are projecting increases for January, June October. Expenses to grow in line with inflation. And again, we should see some more client acquisition costs that probably we do see in 2020 that you're going to see in 2021. Probably the trend, you should take as a reference what happened in 2019. We expect to have a trend similar to what happened that year.
Going to loan growth, to give you an idea, year to date with the figures as of October, the bank in nominal terms, the bank has been growing around 32% above the system. The profit was growing around 40%, a little bit below the system. And we are projecting for the year end loan growth in nominal terms to grow around 42%. That will be around 39 sorry, 3% in real time. We are projecting an inflation towards the end of the year of 39%.
Regarding the deposits, these are going to grow still going to grow above loans, growing around 50%, which also gives you real growth in real terms. For 2021, the mix should be inverted. Loans should start to grow above deposits, loans growing around above the system and deposit also growing above the system. The inflation we are projecting for 2021 is 50%. So both variables are growing above inflation.
Okay. Thank you very much. Welcome.
The next question is from Carlos Gomez with HSBC. Please go ahead.
Hi, good morning. Could you clarify further the situation with the dividend? So you declared an initial dividend, which again, if I understand correctly, you did not pay because the Central Bank has not allowed it. Now you're declaring a complementary dividend, which again will be pending Central Bank approval. And I imagine that they remain parked until the Central Bank changes its mind and you can pay for it.
Do you have a realistic expectation to pay the dividend this year? Or this is more likely for next year? And if and when you are allowed, are you planning to do it in pesos? Or are you going to make any type of facilitation for foreign shareholders to access it in dollars? Thank you.
Hi, Carlos. Regarding Central Bank, there is no flexibility. It's difficult to say when we will be able to pay. The truth is that by doing this, we are increasing our monetary liabilities which help stabilize inflation. Basically, you will see a lower effect on the line of inflation in the P and L.
So despite we do not have the approval to distribute and we don't know when that's going to happen. This should have a positive effect in the P and L because we are trying to hedge inflation. So basically, that's the main difference.
So when you let us understand this. It's not completely clear to me. So you declared a dividend. So essentially, a dividend comes out of equity, but its categorization changes from non monetary liability to no, sorry, from monetary liability to non monetary liability?
No. It comes out from the equity and goes into the net A liability. A monetary liability.
What happens is that you have less net monetary assets at the end of the day. Okay. So you'll have less monetary assets because now this we can say liability as opposed to being part of the equity. Correct. Exactly.
That's the point. All right. Is there any real life implication, taxes or otherwise? Because otherwise, it's just simply cosmetic. It's just what happens to the adjustment and therefore the reported earnings.
I'm not sure I understand your question, but basically, this will give you less inflation adjustment effects because you have the dividend on the liability side, on the monetary liabilities. That's the main effect. We're trying to hedge against inflation by doing this.
Okay. My other question was, is there any fiscal impact from that? Does your tax liability change because you have more or less? The answer to that is there is no any fiscal impact because in terms of fiscality, you are going to consider it when you really pay the dividend, not when you declare the
This concludes the question and answer section. At this time, I would like to turn the floor back to Mrs. Lynn Mussey for any closing remarks.
Thank you, operator, and thank you all for joining us today. We appreciate your interest in us. We look forward to meeting more of you over the upcoming months and providing financial and disruptive next quarter. As usual, if you have any further questions, please do not hesitate to reach us and we'll be happy to follow-up. Thank you and enjoy the rest of the day.
Thank you. This concludes today's presentation. You may disconnect your lines at this time and have a nice day.