Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Francis' 3 Q 'eighteen 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 both companies' presentation. After the company's 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 risks to differ materially from those expressed in the forward looking statements. Additional information concerning these factors is contained in BBVA Francis' Annual Report on Form 20 F for the fiscal year 2017, followed with the U.
S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Gallardo, CFO and Ms. Cecilia Acuna, Head of Investor Relations.
Ms. Acuna, you may begin your conference.
Thank you. Good afternoon, everyone. As usual, I will start with a brief summary on the most important topics of the Q3 of 2018, and then we'll be open to questions. Now I'd like to make a brief review on the macroeconomic environment. The amendment with the International Monetary Fund in June did not result confident as expected and triggered a new one of capital outlook and strong depreciation of the peso during the Q1, which only fell down after renewed commitment to perform greater fee structure adjustments.
In this context, a new agreement with the IMS was reached going from $50,000,000,000 to $56,700,000,000 The inclusion targeted plan was abandoned and replaced by the new monetary exchange system that seeks to keep the monetary base contract in nominal terms until June 2019. Together with this, the Central Bank continues to increase the cash reserve requirements up to 2.300 basis points in the Q4 of 2018. Due to the economic slowdown, the demand for credit has plunged, but deposits maintained a good performance, although slowing the pace of growth. Now I'd like to make a brief review on the bank's performance. First of all, I'd like to remind you that since January 1, 2018, figures have reported in accordance with IFRS.
Having stated in the Q1 of 2019, Radio Air France reached a net income of ARS 3,000,000,000, 41.6 percent and ARS 117.7 higher than the net income registered in the previous quarter. And in the Q3 of 2017, In the last day, we stated for comparative purposes. During the Q3 of 2018, the ROE reached 4 percent and the ROA 34.8 percent compared to 3.5% and 26.4% public in the previous quarter, respectively. Net operating income reached ARS 10,000,000,000, increasing 27.2% compared to the previous quarter and by 71.4% compared to the Q3 2017. As a clarification, a reclassification was performed during this quarter due to the change in the criteria regarding the deferral of credit card initiatives, which were previously recorded as net interest income and are now recorded as net fee income and other operating income.
Operating expenses reached ARS ARS 6,200,000,000, an increase of 18.7% compared to the previous quarter due to higher personnel expenses. The efficiency ratio in the quarter reached 46.7 percent showing an improvement around 281 basis points compared to the previous quarter and 8 22 basis points compared to the Q3 2017. In connection to the activity level, at the end of September, the private sector loan portfolio totaled ARS 178.6 billion, increasing 10.2% during the quarter and 61.5% in the last 12 months. As a clarification, as of the 3rd quarter, both finance and financial services is no longer recorded on a consolidated basis. Loan consolidated market share was 8.38%, showing an increase of 33 basis points in the last 12 months.
Heavy growth was affected during the quarter by the revaluation of the peso and higher interest rate, resulting in a strong increase of loans in dollars, mainly due to registration of the new value of the currency and EMI growth in peso. With regard to loans, individual credit card and personal loans recorded a positive performance, offsetting the slowdown in the demand for mortgages loans. Commercial loan growth was mainly due to the restriction of the appraisal. At the end of September, the asset quality ratio was 0.99% with a coverage ratio of 220.5 percent. The cost of risk reached 1.71%, 22 basis points above last quarter due to some deterioration, mainly on the weaker portfolio.
The drought that affected the country during the 1st month of 3rd year did not have a significant impact on the affected portfolio. Top party deposits reached ARS 247.2 billion at the end of September, increasing 28.2 percent compared to the previous quarters and 90.5% compared with the Q3 of 2017. Foreign currency deposits remained stable during the quarter, but this balance reflects the depreciation of Perpixon. Local currency deposits decreased 18.7%, mainly due to increases in saving account and current account with increase. BEA Franca continues to show an adequate level of solvency.
At the end of September, the total capital ratio was 14.1%, 52 basis points lower than the ratio of June, mainly due to the higher risk weighted assets, those denominated in foreign currency as a consequence of the revaluation of the peso. The RAS ratio Tier 1 was 12.9% at the same day. Thank you very much. We are now ready to answer your questions.
Thank you. The floor is now open for questions. Our first question comes from Alonso Garcia with Credit Suisse. Please go ahead.
Good morning, everyone. Thanks for taking my question. First of all, I would like to talk about margins. We observed margins flattish versus the previous quarter despite much higher central bank rates versus the Q4, basically given the higher cash levels and deposit costs. But what should we expect from current levels?
Do you think we can expect higher margins for the Q4 as loan yields catch up with the higher deposit costs on the back of repricing and also even higher Central Bank rate in the Q4? And also, if you have any preliminary expectations for next year? Thank you.
I think we can expect similar level of margins for the 4th quarter. It will depend on the, of course, on the evolution of interest rates of the Central Bank, but we are expecting to maintain more or less the levels that we have at the end of the year because we've never changed in that sense in the level of interest rates of our fixed interest rates. For the next year, we are expecting to have or to see a decrease in interest rates during the year, but this is something that will depend on many, many uncertainties that we have in front of us. So the idea that we have is that we will maintain at the beginning of the year, at least, the same kind of margins that we have in terms of client spreads.
And when you say that you're expecting margins for the Q4, are you considering like the OE margin also considering results from valuation of securities that goes outside the NII? Or you are only talking about NII, just to be sure?
I'm talking about the net interest income coming from everything that is included in the net interest income. So I am talking also about the help to collect and sell portfolio that we have in that part of the balance sheet. So considering the central bank assets. There is a relationship that you're talking about margins, so we're talking about asset sales liabilities. In that sense, if there is a kind of decrease of a small decrease in interest rates, it will affect both liabilities and assets.
Okay, got it. And regarding just as a last question regarding asset quality, I wanted to check what segment is generating more pressure currently and if you believe that cost of risk for this quarter should be seen at the peak or when do you anticipate stabilization in provisions? Thank you.
In terms of Costa Rica, I think that we can expect maybe a little bit higher for the next for the last quarter of the year. But around the levels that we have, I mean, we will be we will continue being one of the most conservative, let's say, or having one of the best cost at risk in the sector. I think that due to the environment that we have, we can foresee a little bit higher number, but nothing worry really.
It's only 10% about this cost of retail will be funded.
Okay. And which sector is causing more pressure right now? Is it the retail segment? Or are you seeing issues on the commercial side as well?
In the retail, right? I mean, it's what we've seen. The other thing is that you never know if you are going to have something specifically in the company, but I think that is more in the retail portfolio.
Okay. Thank you very much.
Our next question comes from Gabriel Nobrega with Citi. Please go ahead.
Hi, Ernesto and Cecilia. Thank you for the opportunity to ask questions. I actually have a follow-up on this question on asset quality. We are actually seeing that trend tails are increasing, and I think it's very understandable due to the deteriorating macroeconomic situation. But during the quarter, we saw that you increased well your provisions and you reached a really high cost of risk, while still maintaining a very solid coverage ratio of around 2 20%.
And so my question is, what maybe are you seeing in terms of asset quality risks that are worrying you? And why do you think you need to continue making such high provisions if you are already very well covered? And I'll make a second question afterwards. Thank you.
Well, during the quarter, we increased, as you said, the provision mainly because the retail segments and some companies that have problems that was the reason of the increase. And for the following quarter, we will see what will happen.
And what I just want to understand maybe if I try to rephrase this question is that, do you think that it is reasonable for your bank to continue on having a coverage ratio above 200%?
Above could be a little lower than that level.
We are not expecting to see in the last quarter of the year, even considering the circumstances of the environment that we have, we have also seen a strong decrease on the coverage ratio. We could have it we could have or we could see a smaller number in coverage ratio, but it should be close to that number. I mean, below that at around 200 level, yes, it should be.
The thing is that we have not implemented IFRS now, but we have the good level of provision if we need to implement it right now.
All right. Perfectly understood. And I have another question regarding your loan growth. We see that it continues to be above inflation at around 60% year over year. However, this continues to be mainly pushed by the dollar denominated loans and the depreciation.
Despite this, we still saw that you were able to gain share. And so what I would like to understand from you is if you want to continue on growing and gaining share, are you beginning to invest all of these and lack of demand and credits into government securities?
So we will pretend to continue. We're gaining market share. It's typical in this environment. But the idea of the bank is to close it up with our competitors in terms of share. So we will continue to plan.
To say that we are doing our business in a business as usual, let's say, mobile being always conservative and prudent in our decisions. But we have not we didn't close any, let's say, kind of activity. And we are, let's say, we go with the economy and we go with the activities that there is in the market. So in that sense, if we can gain market share, we will do it. The investments in other assets like Leliq or others, Central Bank assets, it's due to the new requirements of liquidity for minimum effective.
So I mean, the cost requirements that we have coming from the Central Bank is what is behind of the increase of this portfolio. But not because we don't let's say we try to close the loans portfolio or something like that and then to buy or to purchase central bank assets. The other question, just coming back to the question about the coverage ratio. I mean, the idea again, we cannot say that we are not going to suffer about the coverage ratio due to the behavior of the portfolio. We cannot foresee, let's say, but behavior for maybe a corporate or a company.
In that case, we could see some deterioration of the numbers. But we think that still we will maintain very well numbers of coverage ratio and cost of goods.
This concludes the question and answer section. At this time, I would like to turn the floor back to Ms. Acuna for any closing remarks.
Thanks again for joining us. And if you have any further questions, please contact us in our offices. Thank you.
Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.