Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's second quarter 2019 results conference call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during both companies' presentation. After the companies' remarks are completed, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press Star then Zero to reach the operator. 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 forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina annual report on Form 20-F for the fiscal year 2018, filed with the U.S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Gallardo, CFO, Mrs. Ines Lanusse, IRO, and Mrs. Cecilia Acuña, Investor Relations Manager. Mrs. Acuña, you may begin.
Thank you. Good morning, everyone, and thanks for joining us today for a discussion on BBVA Argentina's second quarter 2019 results. On June 10, 2019, the BBVA Group globally adopted a single unit brand, BBVA. In Argentina, BBVA Francés is now BBVA. The corporate name is also changed to Banco BBVA Argentina, which has been approved by the Central Bank and will begin to be used once registered in the Public Registry of Commerce. I will now briefly comment on the most important topics of the quarter, and then we will be open to questions. BBVA Argentina's net income reached ARS 6.8 billion for the second quarter of 2018, a 16.9% increase compared to the previous quarter. Net income during the first quarter included the impact of the sale of 51% of the bank estate in Prisma Medios de Pago, and the market valuation of the remaining 49%.
Excluding such impact, the growth in the quarter would have been 74.1%. During the second quarter of the year, BBVA reached an average return on assets of 7% and an ROE of 58.4%. Net operating income amounted to ARS 20.9 billion, including ARS 3.2 billion accounting for as other operating income. Such amount is related to the results from the application of the inflation adjustment to the 2018 income tax calculation. At the same time, a provision for the same amount is accounted for in other operating expenses like E10. Operating expenses reached ARS 12.1 billion, including such provisions. Efficiency ratio for the quarter reached 34.2%, registered an improvement compared to the ratios of the previous quarter and the second quarter of 2018.
In terms of activity, the private sector loan portfolio totals ARS 186.6 billion, remaining at a similar level compared to the previous quarter, while increasing 15.1% in the last 12 months. Including the Volkswagen Financial Services portfolio growth, which had reached 1.1% and 19.9% respectively. On a consolidated basis, including the JVs, BBVA loan book reached an 8.5% market share, showing an increase of 27 basis points in the last 12 months. In the last quarter, credit growth in Argentina was affected by the valuation of the peso and higher interest rates. Loan in pesos, including Volkswagen, increased 4.7% compared with the previous quarter, and increased 11.3% compared with the second quarter of 2018. Regarding US dollar loans expressed in pesos, it fell by 5.1% in the quarter and increased 40.3% in the last 12 months, mainly due to the re-expression of the new value of the currency.
Measured in $, it fell in both periods by 3% and 4.6% respectively. Regarding retail loans, credit card finances grew 5.6% during the quarter and 36.4% annually, while mortgages loan reflected the impact of inflation. Personal loans remained stable during the quarter and increased 18.1% in the last 12 months. Commercial loans fell 2.4% compared to the previous quarters, mainly due to the decrease in the foreign currency-denominated portfolio. Compared to the second quarter of 2018, it grew 9.2%. At the end of June, the asset quality ratio measured as non-performing loans over total loans reached 2.66%, with a recovery ratio of 112.87%. The cost of risk reached 2.5%41 basis points above last quarter, mainly due to some deterioration in the commercial portfolio. During the quarter, the provision for Molino Cañuelas increased to 50% from 31% in the previous quarter.
Total deposits amounting to ARS 285.2 billion at the end of June, increasing 2.3% and 47.9% compared to the previous quarter and the second quarter of 2018, respectively. Deposits in local currency grew by 2.7% and 34.5% compared to the quarters ending as of March 2019 and June 2018, respectively. Foreign currency denominated deposits expressed in ARS grew 2% during the quarter and 65.9% in the last 12 months. Measured in the currency of origin, they increased 4% and 12.8% in the same period, respectively. At the end of June, BBVA had a total consolidated capital ratio of 16.7%, which represents an excess of ARS 24.2 billion or 103.6% over the minimum requirement. The Tier 1 ratio is 16%, and liquid assets accounted for 60.7% of advanced deposits at the end of June 2018. Thank you very much. We are now ready to answer your questions.
We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone at this or at any time. If at any point your question is answered, you may remove yourself from the queue by pressing star then two. Questions will be taken in the order that they are received. We do then ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Our first question today will come from Gabriel Nobrega with Citi. Please go ahead.
Hi, Ernesto, Ines, and Cecilia. Thank you for the opportunity to ask questions. What I would like to further understand is about the ARS 3.2 billion gain that you booked in your other operating income during this quarter. I understand that this is similar to what was done in 2016 and 2017. I would just maybe like to understand why have you done this again? What could be the timeframe for the decision to come out, so that we will know if you will be able or not to reverse the provisions that you made in other operating income? I'll make a second question afterwards. Thank you.
Okay, Gabriel. How are you? As I explained you, we did this in 2016 and 2017. It is because the income tax effective rate, if we consider the effects of inflation, is confiscatory. It's more than 90%. As the central bank or the regulator act in 2017, we made a provision for the same amount. It's neutral, the effect in the net income. If in the future we have a positive result for this situation, we will reverse it.
Just to follow up here, Cecilia. What could be a timeframe for us to know when you will be able to revert this and have a positive result?
I don't know. Probably in six years.
Okay. As for my second question, looking at the sharp peso depreciation that we are seeing today, could you just maybe remind us what is your exposure to foreign currency and also to inflation rates, how do you expect this sharp depreciation to affect your results over the incoming months? Thank you.
Just a sec, hold a minute, please.
Hi, Gabriel. Ines speaking. Regarding the dollar position, we're in a long position. To give you an idea, our loans in dollars represent approximately 36% of our deposit, 47%. Regarding inflation, I'm sure you are familiar with what's going on with the primary elections. We had a projection for this year around 40%, definitely given the scenario, we need to recalculate and see what's going to happen for our remaining months of the year.
All right. That's very clear. Thank you for the answers.
Our next question will come from Alonso Garcia with Credit Suisse. Please go ahead.
Good morning, this is Alonso Garcia. Thank you for taking my question. I just wanted to ask, probably it is early to ask you, but I don't know if you are seeing a deposit runoff in terms of ARS deposit runoff in these first few hours after the electoral results last night. Probably, if it's too early, if you anticipate the risk of a significant deposit runoff after elections result. My second question would be regarding, we read in the news some issues with the home banking platforms of some banks in Argentina, given the large amount of payments on taxes that clients were trying to do. If you could comment on this, if the issues have been solved, and if there is enough liquidity in banks to respond to this demand of payments. Thank you.
Hello, this is Ines speaking. Regarding your question, it's probably too early to say what's going to be the effect on deposit withdrawal. What we can tell you is that we have a huge, more than 50% liquidity in U.S. dollars, between what we have in the branches, between what we have at the central bank at zero interest rates, what we have of government securities. We are prepared to respond with at least the half percent of the dollar deposits, so we are not concerned about that. The bank and entire financial system has a very healthy position. We've been through all this experience in the past, so we are prepared to respond in case we see a withdrawal of deposits.
The U.S. dollar denominated loan portfolio is very short.
Correct.
Short maturity.
Okay. Regarding the banking platform, the home banking platform, have issues been solved already? Can you elaborate on the reasons for the issues?
No, at least for now, we haven't heard nothing that is uncommon. Ordinary, this is a morning with a typical situation, but nothing we should be alarmed.
Understood. Thank you. Thank you very much.
As a reminder, if you would like to ask a question, please press star, then one. Our next question will come from Carlos Gomez-Lopez with HSBC. Please go ahead.
Hi, good morning. Thank you for making the call in a difficult day. Two questions. The first one is going back to your Forex position. I know you are balanced, I know you are very liquid, but can you give us, if you can, your net Forex position as of now and what % of your regulatory capital it represents? We understand that it is limited and it cannot be too large. If you can give us the net position, that would be great. Second, your NIM this quarter was extremely high. We understand that the rate was very elevated, but is there any extraordinary element in this NIM? Is this level of NIM that you think you could replicate in the coming one or two quarters, or there was something extraordinary in the result? Thank you.
Hi, Carlos. Regarding the NIM, no, there is the effects of the high levels of LELIQs and the high rates. There's nothing extraordinary on that.
Again, if I look at the numbers, correct me if I'm wrong, I think it goes from 17 to 25%. That's a big jump. We understand that the LELIQ is very high, but it didn't change that much from one quarter to the other. Why does it increase so much for you?
The levels of the rates in ARS for public instruments passed from 49%-64%, an average of ARS 44 billion-ARS 68 billion. We have high impact on that. In the assets rates, passed from 44%-51%. We have a very good manage of prices in terms of liability, because we are not paying corporate deposits a higher rate. I will send you the charts by email.
Okay. Thank you. The Forex?
In terms of Forex, we are under the limits that the central bank has. We have around 10% of long position in US dollar, but it's changing every day, as you can imagine.
Right.
I think that the most important thing to comment right now in this issue is that we are long. We are not short in US dollar, and considering the situation that we have, this is the right position to have, to maintain right now.
Sure. Again, to remind, the regulatory limit right now is 15 or 10?
5%, up to 5%. Depending on the different investments that you have, you can maintain, you can achieve 30%. You have other considerations in order to understand or to know exactly the maximum position you can have in Forex. I should say that you can go from 5% to 30%, and yeah, we are a little bit above this 5%.
Five. You're a bit above five, not above 10.
Yeah. Well, we're close to 10.
Close to 10. Okay.
Well, if we consider the position that we had at the end of June, is more close to 5%.
Okay. Thank you.
This concludes the question and answer section. I would like to turn the floor back to Mrs. Acuña for any closing remarks.
Okay. Thanks again to all of you joining us, and do not hesitate to contact us directly for any further questions. Thank you.
Thank you. This concludes today's presentation. Thank you for attending, and you may now disconnect.