Ladies and gentlemen, thank you for waiting. At this time, we would like to welcome everyone to BBVA Francés' 1Q19 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 section. 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. 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 Francés Annual Report on Form 20-F for the fiscal year 2017, filed with the U.S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Gallardo, CFO, Ms. Inés Lanusse, IRO, and Ms. Cecilia Acuña, Head of Investor Relations. Ms. Acuña, you may begin your conference.
Thank you. Good morning, everyone, thanks for joining us today for a discussion on BBVA Francés first quarter 2019 results. I will now briefly comment on the most important topics of the quarter, then we will be open to questions. In the first quarter of 2019, BBVA Francés reached a net income of ARS 6 billion, 104.6% higher than in the previous quarter and 288.8% higher than the net income registered in the first quarter of 2018. This net income includes the impact attributed to the sale of the 51% of BBVA Francés participation in Prisma Medios de Pago, and the valuation of the remaining 49%. Excluding this extraordinary result, net income of BBVA Francés reached ARS 3.9 billion, 32.5% higher than in the previous quarter, and 151.8% than the net income registered in the first quarter of 2018.
During the first quarter of the year, the ROA reached 6.6%, and the ROE, 58.8%, compared to 3.4% and 31.7% published in the previous quarter, respectively. Excluding Prisma sale impact, the ROA would have reached 4.3%, and the ROE, 38.1%. Net operating income reached ARS 16 billion, increasing 42.3% compared to the previous quarter and 98.7% compared to the first quarter of 2018. Operating expenses reached ARS 7.6 billion, increasing 2.7% compared to the previous quarter. This effect was mainly driven by a 5.5% increase in personal expenses attributed to the salary negotiations with the labor union and its compensation scheme, was offset by 6.9% decrease in administrative expenses, led by less expenses related to transport of value and less rents. The efficiency ratio in the quarter reached 37%, showing an improvement of around 142 basis points compared to the previous quarter.
Regarding BBVA Francés activity, at the end of March 2019, the private sector loan portfolio totaled ARS 185.3 billion, increasing 2.1% during the quarter and 32.9% in the last 12 months. These figures exclude Volkswagen Financial Services loans, which since the third quarter of 2019, are no longer included under car secured loans in the balance sheet. On a consolidated basis, including the JVs, that is Volkswagen, Rombo, and PSA, BBVA Francés loan book reached 8.6% market share, showing an increase of 30 basis points in the last 12 months. In the first quarter of 2019, credit growth in Argentina was affected by the devaluation of the ARS and higher interest rates. Loans in ARS, including Volkswagen portfolio, decreased 5.1% compared with the previous quarter and increased 12.3% compared with the first quarter of 2018.
Regarding the U.S. dollar loans expressed in ARS, the macroeconomic situation resulted in a 16.9% increase in the quarter and 7.1% increase in the last 12 months, mainly due to the reexpression of the new value of the currency. Measured in dollars, they increased 2% during the quarter and decreased 4% on the annual comparison. With regards to loans to individuals, credit card and personal loans recorded a positive performance, while mortgage loans reflected the impact of increasing inflation. Commercial loans growth was mainly due to the depreciation of the ARS. At the end of March, the asset quality ratio measured as non-performing loans over total loans reached 2.21%, with a recovery ratio of 114.42%. The cost of risk reached 2.09%, 21 basis points above last quarter, and due to some deterioration in the retail portfolio.
Total deposits reached ARS 278.7 billion at the end of the first quarter, increasing 7.4% compared to the previous quarter and 74.2% compared with the first quarter of 2018. Foreign currency deposits expressed in ARS grew 18.1% in the quarter and 139.5% in the last 12 months. Measured in dollars, they increased 3.5% during the quarter and 11% on the annual comparison. Local currency deposits increased 1.2% in the quarter and 47.2% compared with the first quarter of 2018. This effect was mainly driven by the fixed adjustment time deposits, which offset savings accounts decreased in the quarter. BBVA Francés continues to show an adequate level of solvency. As of the first quarter of 2018, the total capital ratio was 15.3%, 101 basis points higher than in the previous quarter, mainly due to the result experienced during the quarter.
The Tier 1 ratio reached 14.6%, with an excess of capital of ARS 20.1 billion. That ends our prepared remarks. We will be happy to take your questions. We are now open to the Q&A.
Thank you. The floor is now open for questions. If you have a question, please press star then one on your touch-tone phone at this or 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 they are received. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. The first question comes from Gabriel Nobrega with Citi. Please go ahead.
Hi, everyone. Thank you for the opportunity to ask questions. During the quarter, we saw that your NPLs continued to increase while coverage decreased again. I know that this is greatly due to the deterioration and your exposure to Molinos, to this troubled corporate. Could you just please remind us, what is your total exposure to this company, and what coverage have you reached for it already?
Hello, Gabriel. How are you? Our exposure to Molinos Cañuelas is 3% of the total debt. As of March, the provisions are in line with the 30%.
All right. If you just allow me a follow-up here, do you expect to make more provisions throughout the year? If you do expect to make more provisions for this company, where should we see your cost of risk in 2019?
We expect to make higher provisions, probably up to 50% in this second quarter. We have our expectations of the NPLs by the end of the year, it's close to approximately between 2.5%-2.6%.
All right. That's very clear. I also have another question. Looking at the past two or three months, the Central Bank has issued a lot of new regulations for the banks. One that caught most of my attention was actually on the shortening of the credit card settlement period from 19 days to 10 days. Could you maybe talk us through what are the main impacts to your P&L from this new regulation, please?
Okay. Yes, we have an impact, we will try to compensate with some measures that we will take with our alliances. The impact, if we consider a level of rate for the LELIQs at approximately 65%, consider some measures that we will take to compensate this impact, will be in line with minus ARS 1.2 million for 2019, the whole year.
All right. That's very clear, Cecilia. Thank you for your answers.
You are welcome.
The next question will be from Walter Chiarvesio with Santander. Please go ahead.
Yes, hi. Good afternoon. Thanks for the call. I have two questions. One is related to the quite lower interest expenses on current account deposits. Last quarter, in the first quarter, you got ARS 1.9 billion decreased to ARS 0.7 billion almost. How is that explained, if you change the strategy on remunerative current accounts or something? The second point is that, adding all personal expenses and administrative expenses had an increase of 10.29% in the quarter year-over-year, which is quite below inflation. How do you explain that, and what is your estimate for the rest of the year? That is from my side.
Okay. Hi, Walter. First, I will start with the expenditures. This year, we expect in line with inflation by the end of the year. Explanation, compared with the previous year, is mainly in two parts. The first is that according to IFRS, there is a reclassification in the way that we accounted the rent. In the previous accounting, we accounted on accrual basis, because if you see in the rent line, there is a decrease. Now we see in the asset side, we amortize every month. That is one of the explanations, because the rentals are lower than inflation compared to the previous year. The second one, regarding the lower rate for current accounts, is explained by the Central Bank in February changed the reserve requirements. In a context that for current accounts, the reserve requirements are higher, we pay less for remunerated current accounts.
Sorry, related to the remunerated current account, is that something that changed in the first quarter that was different from the fourth quarter? I don't remind that.
The Central Bank changed the way that the reserve requirements are in February, that's all. We have that for a sight deposit, 30% of the requirement has to be integrated in cash. For a time deposit, at the end of the day, is 17%. For sight deposits, the remunerated requirement, but in cash, is higher. We try to pay less for these remunerated current accounts.
Understood. Okay, thank you very much.
No problem.
Once again, if you'd like to ask a question, please press star then one. The next question comes from Santiago Maspero with AR Partners. Please go ahead.
Hi, everyone. Thank you for taking my question. I'm seeing that the credit losses more than doubled in the pace of quarter-over-quarter. Considering that the coverage went slightly down and NPLs a bit slightly up, but not so much. I'm wondering, how did the write-offs move during the quarter compared to the previous quarters, and what could be the explanation behind this sharp increase in credit losses in the first quarter of the year?
In this quarter, it's mainly explained by the deterioration of the retail portfolio.
Okay. That's the attribute to that. Okay. Thank you.
No problem.
The next question comes from Juan Alonso with Cowen. Please go ahead.
Hi. Thank you for taking my question. I would like to ask if this year, like the two years before, you adjusted also the fiscal balance sheet for inflation, related to ongoing litigation with the AFIP. If that's the case, what was the amount that you saved this year in income taxes, and what is the amount, including the last two years on top of this one? Thank you.
Okay. The last two years was ARS 1.2 billion. Yes, around ARS 2 billion, ARS 1.1 the first year and ARS 1 billion the second one. This year, for 2018, we are analyzing the measures that we will take.
Okay, thank you. Also, if I may, if you could touch a bit about the impact on the inflation adjustment that you would need to post on the 20-F. How would that be, if you could give us any color? Thank you.
I don't have the figures on the local balance sheet for the first quarter.
No, I was meaning about the 2018 results.
Tomorrow, we will publish the 20-F. We have there the 2018 figures adjusted by inflation.
Okay, thank you. That's for me.
No problem.
Once again, if you'd like to ask a question, please press star then one. This concludes our question and answer section. At this time, I'd like to turn the floor back over to Ms. Acuña for any closing remarks.
Thank you. Thanks again to all of you joining us. Do not hesitate to contact us directly for any further questions. Have a nice day.
Thank you. This concludes today's presentation. You may disconnect your lines at this time, and have a nice day.