Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to the BBVA Argentina's fourth Q18 results conference call. We would like to inform you that the event is being recorded and all participants will be in listen-only mode during both companies' presentations. After the companies' remarks are completed, there will be a question and answer section. At that time, further questions or instructions will be given. Should any participant need assistance during the 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 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 2017, filed with the U.S. Securities and Exchange Commission. Today, with us on the call, we have Mr. Ernesto Gallardo, CFO, and Mrs. Cecilia Acuña, Head of Investor Relations. Mrs. Acuña, you may begin your conference.
Okay. Thank you. First of all, sorry for the delay. We have a problem with the release in the New York Stock Exchange. Good afternoon, everyone. As usual, I will start with a brief summary on the most important topics of 2018. Then we'll be open to questions. I'd like to make a brief review of the bank's performance. First of all, I'd like to remind you that in summary, the first 2018 pivots are reported in accordance with other files. Having said this, BBVA Francés recorded an annual net income of ARS 9.6 billion at the end of December, registering a 114.6% increase over the result of 2017. 28.5% average return on equity and 3.4% average return on assets.
Net operating income amounting to ARS 37.6 billion, increasing 56.5% compared to the previous year, while operating expenses amounting to ARS 24.7 billion, showing an increase of 34.5% during the period. Revenues were supported by the growth in net interest income, which increased 79.9% during the year, mainly due to the rise in interest rates. Net income results withdrew at a similar rate and by the results generated by foreign exchange difference, which include both the impact of the devaluation and foreign exchange transactions. All of this partially offset by the increase of provision for loan losses. Operating expenses, personal expenses grew 30.3% in the year below inflation, mainly as a result of the salary payment of the salary increase, while administrative expenses grew 39.1% in the same period. Accumulated efficiency ratio was 49.6% at the end of 2018, registering a decrease compared to the 60% of 2017.
In connection with the entry level, at the end of December, the private sector loan portfolio totaled ARS 181.4 billion, maintaining similar levels to those of the previous quarter and increasing by 42.2% in the last 12 months. As a clarification, as of the third quarter, Volkswagen Financial Services is no longer recorded on a consolidated basis. Including the Volkswagen portfolio, loan growth would have reached 47.9%. Loan consolidating market share was 8.71%, showing an increase of 40 basis points in the last 12 months. Credit growth was affected during the year by the devaluation of the ARS and high interest rates. Loans in ARS increased 3.6% in the quarter and 22.3% in the last 12 months, 4.3% and 29.7%, respectively, including Volkswagen portfolio.
While US dollar-denominated loans decreased 2.4% in the quarter and increased 110.5% in the last 12 months, mainly due to a reexpression to the new value of the currency. Meanwhile, measured in US dollars, they increased around 6% in both periods. At the end of December, the asset quality ratio, non-performing loans over total loans, was 1.92%, with a recovery ratio of 119.2%. These indicators show some deterioration in the loan portfolio, mainly due to specific cases in the commercial portfolio. The cost of risk reached 1.88%, recording an increase of 17 basis points during the quarter. Total deposits amounting to ARS 259.5 billion at the end of December, increased 5% compared to the previous quarter and 68.6% compared with the last quarter of 2017.
Foreign currency deposits denominated in ARS remained stable during the quarter and increased 76.1% in the last 12 months. The deposits denominated in foreign currency increased 7.8% in the quarter and decreased 13% compared to the last quarter of 2017. Local currency deposits increased 8.3% in the quarter and 65% in the year. In November 2018, BBVA Francés issued a bond linked to inflation for ARS 784.3 million with 24 months maturity and 9.5% fixed rate. Later, on February 2019, issued two bonds in ARS, one for ARS 529.4 million with nine months maturity and a 6.3% interest rate, and the other for ARS 1 billion with 18 months maturity and a flat rate plus 6.25%. BBVA Francés continues to show an adequate level of solvency. At the end of December, the total capital ratio was 14.3%, similar to the ratio of September.
The Tier 1 ratio was 14.5%, and the excess capital over the regulatory required capital was ARS 16.2 billion. It is important to mention that the board of BBVA Francés has resolved to propose to the shareholders meeting the payment of dividends in cash for a total amount of ARS 2.4 billion. On February the 1st, 2019, with the framework of the divestment committed and sealed between Manejo del Pago and its shareholders with the Antitrust Regulatory Authority, the 51% of the bank's shareholding in said company was sold. Thank you very much. We are now ready to answer your questions.
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 at any time. If at any point your question has been 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 ask that when you pose your question, that you please pick up your handset to provide optimum sound quality. We will now pause for a moment to review our roster. Our first question today will be Gabriel Nobrega with Citi. Please go ahead with your question.
Hi, Ernesto and Cecilia. Thank you for taking my question. Looking at your results, could you maybe talk a little bit more about what happened to your NPL ratios? From which sectors are you actually seeing these troubled corporates, and is there any strategy that you could be implementing to improve this? I'll make the second question afterwards. Thank you.
Okay, Gabriel. How are you? Mainly the situation in the NPL ratios and the coverage is that we made more provision for Molino Cañuelas. Not considering that situation, the NPL ratio would reach 1.2%. The company is restructuring the debt, so it's because of that we have that impact in this fourth quarter. We made the provision in the third quarter, actually, that the company is not performing in this fourth quarter.
All right. That's very clear. Could you also maybe give us a bit more of color on the strategy that you implemented in order to be able to increase your personnel expenses by only 20%? This is a bit tough because being that inflation was above 45% and you're also having discussions with the banking union, I just want to understand which were the strategies that you implemented, which were able to only increase 20% over year, and also maybe if you could give some guidance on what you're expecting for the full year. Thank you.
Right. Gabriel, it was 30% personnel expenditures during the year. That is because this year, or the previous year, 2019, the payment of the salary increases were made like in advance, when the inflation occurred. If the inflation ended the year at 47.6%, that if the average was more close to 53%. It's because of that. In the previous year, the situation was that the increase in salaries were retroactive to January. That changed in 2018.
All right. That's very clear. Thank you.
You're welcome.
As a reminder, it is star then one if you would like to ask a question today. Our next question will be Alonso Garcia with Credit Suisse. Please go ahead.
Thank you for taking my question. Good morning, everyone. My first question is regarding asset quality. I just want to follow up on this topic. What's the outlook you are expecting for NPLs and cost of risk for this year? Especially if you think that this exposure on the corporate segment could put pressure on asset quality metrics for the remaining quarter, especially on the provisions line. My second question is on the outlook for loan growth for this year. I don't know if you can share your expectations, what segments should be driving growth this year. Thank you.
Okay. Hello, Alonso. I start with the second question. Probably, we are expecting loan growth close to inflation. We are expecting about 30% inflation, so loan growth could be close to 32%. It will be in the similar segments that we saw last year in retail, mainly in credit cards and personal loans. We launched personal loans adjusted by inflation that have more demand. Then on the commercial side, we have to wait a little and see what happens with the rates. Regarding the NPLs, we had this Molinos Zanella at 30% provisioning, and we have to see what happens with this specific company during the following months.
The rest of the portfolio, we are seeing some deterioration in the ratios, also in the retail portfolio, we think that this first quarter probably will be the worst, mainly because the salary increases are starting to be felt and because there was high inflation also in this first month of the year. We will see what happens by the end of the year. One thing that is important is that if we have to implement it, IFRS 9, right now we have the good levels or the similar level of provisioning, so we do not need to make any adjustment.
Understood. Thank you very much.
Once again, it is star one if you would like to ask a question today. Our next question will be Santiago Cotter with Templeton. Please go ahead.
Yes. Hi. Hello. Could you please give us some color on the evolution of the net interest income? Could you please highlight that, what belongs to private sector exposure, what belongs to the public sector exposure, and how do you see this developing in 2019? Thanks.
Hello, Santiago. How are you? We continue seeing high rates in the last days. Probably the net interest income will remain at a very good level. We think that if the Central Bank continues maintaining the high reserve requirements, it will be both, part coming from the public bonds, the LELIQs, or the Central Bank instruments, and the rest from the private portfolio. We continue seeing in this first semester, high rates.
Okay, thanks.
There looks to be no further questions. This will conclude our question and answer session. At this time, I would like to turn the floor back over to Mrs. Acuña for the closing remarks.
Okay. Thanks again for joining us. Sorry again for the delay. If you have any further questions, please contact us in our offices.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.