Good morning, ladies and gentlemen, and thank you for waiting. At this time, we'd like to welcome everyone to the BBVA FRONTAIS First Quarter 2018 Results Conference Call. We'd 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 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 obtained in the BBVA FRANZE 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 Mr. Diego Saeni, Finance and Investor Relations Manager and Mrs.
Cecilia Acuna, Head of Investor Relations. Ms. Acuna, you may begin your conference.
Thank you very much. Good morning, everyone. As usual, I will start with a brief summary on the most important topics of the Q1 of 2019, and then we'll be open to questions. 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, 20 18, fee was not reported in accordance with IFRS.
Having said this, PIEF Franches reached a net income in the Q1 of 2018 of ARS 1,500,000,000, 18.9 percent lower than the net income registered in the previous quarter and 178.3% higher compared to the Q1 of 2017, in both cases restated for comparative purpose. The previous quarter's net income restated to IFRS ARS 1,900,000,000 versus ARS 1,400,000,000 previously released is mainly explained by a lower deferred income tax charge due to the application of a reduced income tax rate approved by Congress last December. During the Q3 of 2018, the ROA reached 2.9%, while return on equity was 20.3%. Although it should be noted that the increase in equity due to the revaluation of the bank's real estate properties from the application of IFRS had a negative impact of approximately 300 basis points in the ROE ratio. Net financial income grew by 6.6% compared to the previous quarter and 52.2% compared to the Q1 of 2017.
Financial income increased 14% during the Q1, mainly due to a higher volume of interrelations with the private sector, the UBA adjustment on the portfolio of private loans and higher income for public securities, whereas the foreign exchange difference decreased by 4.5%. Financial expenses grew 28.6 percent due to the increase in the interest rate for fund deposit in pesos, to 140 basis points, a higher participation of these liabilities compared to the accounts. The net interest margin decreased 22 basis points in the form from 12.56 percent to 12 0.34 percent with a decline of 20 basis points in the local currencies and an increase of 26 basis points in the U. S. Dollar balance, showing a slight negative impact due to the currency mix, a consequence of a greater activity in dollars compared to pesos.
Net income from services increased 1.3% compared to the previous quarter quarter and 36.2% compared to the Q1 of 2017. Service charge income grew 2.4% and 30.8% during the same period, driven by a 15 point percent increase in charges generated by deposit accounts and a 26.1% in charges generated by collection services, while credit card fees decreased by 4.1% due to the decrease in the merchant discount rate, which was partially offset by higher volume of activity. PEA Frances increased its market share in credit card consumption to 13.1% as of March 31, 2018, compared to 12.7% in December 2017. Service charge expenses increased 3.1% during the quarter as the decline in the fees paid for our logistic programs were partially offset by higher processing fees. Administrative expenses grew 3.2% during the previous 3 months and 25.8% compared to the Q1 of 20 17.
Personnel expenses decreased by 1.6% during the quarter, while general expenses increased 10 0.2% compared to the previous quarter and 25.9% compared to the same quarter of 2017. The efficiency ratio in the quarter reached 57.4%, showing an improvement of 150 basis points compared to the previous quarter restated to IFRS. In connection to the activity level, at the end of March 2018, the private sector of our portfolio totaled to ARS 139.4 billion, increases 8.9 percent during the quarter and 69.4 percent in the last 12 months. GBS Franches maintained its 8.3% consolidated market share of loan during the quarter and increased 62 basis points compared to the Q1 of 2017. The pro form a finance to individuals increased 11.1 percent during the quarter and 58.3% compared to the same quarter the previous year, driven mainly by the increase in mortgages and in personal loans, which grew 31.9% and 16.5% during the quarter and 2 0.5.6 percent and 80.5 percent in the year, respectively.
Commercial loans grew 7.3% in the last 3 months and 78.4% compared to the previous year, boosted by foreign currency loans that decreased 19% and 179.2%, respectively. Whereas in local currency, it remained at similar levels compared to the previous quarter due to lower seasonal growth of these type of loan amortizations of the productive investment loans portfolio. Compared to the Q1 of the previous year, it grew 47.4 At the end of March, the asset quality ratio was 0.72% with a COVID ratio of 250.5%. The cost of risk was 1.3% at this time. Total deposits amounted to ARS160 1,000,000,000, growing 3.9% and 30.3% during the quarter and in the last 12 months, respectively, both in line with the market.
Sites accounts remained at similar levels compared to the previous quarter, while it grew 50.7% in the last 12 months. On the other hand, time deposits grew 15.4% during the quarter and 27.3% in the year. Deposits in pesos grew 2.8%, while transactional deposit declined 5.8%, mainly while foreign deposits grew 17.1% due to higher balances in both retail and corporate deposits we announced outstanding performance of Ugas time deposits. Deposits in foreign currency grew 6% during the quarter, reflecting the peso devaluation, and they account for 36% of the bank's total deposits. The EDF and S continues to show an adequate level of solvency.
At the end of March, capital ratio was 15.7%, while the Tier 1 ratio was 14.5%. The annual ordinary and extraordinary shareholders meeting held on April 10 approved a cash dividend payment for a total amount of ARS970 1,000,000, which was expected on May 9, 2018. PDP Frances decided to determine the income tax for 2017 fiscal year ending in May 2018, considering the effects of inflation. At the same time, a declarative action of serpentine was presented, requesting the inefficability of the rules that suspended inflation adjustment based on the confiscatory effect arising thereof. Furthermore, BBS Anse established a ARS 1,000,000,000 provision to cover the cost of contingency derived from this decision.
Thank you very much. We are now ready to answer your questions.
Thank you. The floor is now open for questions. First question today comes from Frederic de Mares with UBS. Please go ahead.
Good morning, Cecilia. Good morning, everyone. Thanks for the opportunity. I have three questions, if I may. The first one on the loan growth.
You had a very strong loan growth in the quarter above system. I was curious to get your views or your insights since we're almost at the end of the second quarter in terms of deceleration, what you should expect for the rest of the year? And in particular, if it's more of a supply issue or demand issue? And by this, I mean, if the demand for loans, for new loans is slowing down or if it's more that maybe you want to be more conservative and reduce your origination? The first question.
The second question, I was curious to get an update on your strategy for credit cards. You had accelerated this line last year. There was a pickup in fee expenses, in card fees at the beginning and we're hoping for a pickup in revenues following in a second movement. So just wanted to hear your thoughts on that specific segment. And then the third question is on the provisions.
Cecilia, you mentioned at the end of the call this €1,000,000,000 provision for contingencies. How should we think of it going forward in the next quarter? Should we expect more contingencies depending on inflation? Or is it more of a one off for the quarter? Thank you.
Well, hello, Fabriz. Thank you for
your question. This is Diego Tesarini.
Well, going for the loan growth, As you know, we were expecting at the beginning of this year 50% or approximately that 50% growth for our portfolio, probably 1,000 basis points above the market. What we are seeing now probably is that we should expect a slowdown of this growth, mainly because of higher rates. We are seeing less demand probably in consumer lines, not in the rest. But I think that until now, we have not seen a slowdown in commercial demand. It's basically working capital, and companies have been following with the same demand that they had in the previous quarter.
But it is true that on the retail side, we should see some deceleration in this quarter. Regarding mortgages, for example, this month, we have been closing operations at the same level that the previous month, but that's just because you have 60 days since the beginning of the operation until it until the buyer finally closes the deal. But we should see some slowdown probably since the end of June or at the beginning of July. It's soon to assess our new expectations for the year, but probably we should think of a figure of around 40% instead of 50%. Regarding our strategy for credit cards, well, it's been in place.
We have grown more than 100,000 new customers during this first quarter. We have now 2,750,000 retail customers. It has proven a good strategy for the bank, and we still have the idea to keep with this strategy and reach 3,000,000 customers figure by the end of this year or by the beginning of next year. Regarding revenues, we should start seeing revenues from the previous year customer acquisitions starting this 2nd semester at a slower pace and see the more broader impact starting in 2019. And finally, on the provision of tax, well, what the bank has decided to do this year for the 2017 exercise is to follow the same path that we followed last year.
We have presented our tax income tax affidavit adjusted by inflation. This means that we have made a ARS 1,000,000,000 provision this Q1 in order not to show the profit. Remember that last year, we showed the profit in the Q1 and then we made the provision because Central Bank asked us to do so even the Q2. But this year, we have decided to make the provision on the Q1. So you are not seeing any difference in the bottom line.
But of course, we keep the money invested in the bank.
Got you. Thank you. You're welcome.
Our next question comes from Alonso Garcia with Credit Suisse. Please go ahead.
Good morning, everyone. Thank you for taking my question. First question is just a follow-up. I would like to ask you, what kind of GDP growth rates, inflation rates and level of interest rates you are considering by the end of the year for this expectation of around 40% loan growth? And my second question would be on the NIM outlook.
I know it's now not really comparable versus the previous few years reported under Central Bank rules. But looking on a comparable basis, what are your expectations for NIM expansion or NIM behavior during this year considering the higher interest rates so far? Thank you.
Okay. Well, thank you, Alonso. Regarding GDP growth, we are now expecting a 1.5 growth for this year compared to the 2.6 that we were expecting a couple of months ago. Regarding inflation, we are expecting a level of 22%, 24% to 25% and interest rates, which right now, for example, the back rate, which right now stand at 40%, we expect them to converge to a level of 28% 30% by the end of the year. Regarding our NIM outlook, well, it's important to say that when you look at what happened during the last month, our deposit rates have not gone up as much as Lebagg's, of course.
In average, our retail base of time deposit has increased the interest rate in 400 basis points 400 basis points to 4 50 basis points. It is quite stable during the last 2 weeks. And of course, those time deposits represent around 40% of our profitable assets. The rest of the profitable assets are funded by checking accounts and sites and savings accounts and of course, equity. Regarding the profitable assets, even if the average maturity of loans is longer than the one off of those time deposits.
We have already rolled over assets that amount a similar amount of the time deposits that we have rolled over. Those assets include our level position, which was very short matured, our lines of overdraft and our discount of checks. So the average increase in those asset lines has been higher than the one that we had in our deposit lines. In average, I'd say that, that increase was around 1,000 or 200 or 1200 basis points. So what we should expect is a positive increase in NIMs for the remaining of the year.
Maybe it doesn't show all of it during the Q2 because the speed of time deposits increase, as I said before, it's faster than the one in assets. But I think that starting in the Q3, we should see an increase of 100 basis points or 150 basis points in our NIM. If rates start to fall through the middle of the Q3 as we expect, we still should see that positive impact to linger on the rest of the year because, well, the first rate to fall would be the time deposit ones.
Perfect. Very clear. Thank you very much.
You're welcome.
This concludes the question and answer section. At this time, I'd like to turn the floor back to Ms. Acuna for any closing remarks.
Okay. Thanks for joining us. And if you have any further questions, please contact us in our office.
Thank you. This does concludes today's presentation. You may disconnect your line at this time and have a nice day.