Welcome to this Grupo Financiero Galicia Q4 2019 earnings release conference call. This call is being recorded. At this time, I would like to turn the call over to Pablo Firvida. Please go ahead, sir.
Thank you. Good morning, welcome to this conference call. I will make a short introduction, we will take your questions. Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. Federal Securities Laws and are subject to risk and uncertainty that could cause actual results to differ materially from those expressed. According to private estimate, the Argentine economy recorded a 0.6% year-over-year contraction during the Q4 of 2019. As a consequence, according to private estimate, the economy accumulated a 2% fall during 2019, the primary deficit reached 0.4% of GDP, a 1.9% reduction compared to 2018. The National Consumer Price Index recorded an 11.7% increase during the quarter, accumulating a 53.8% inflation in 2019.
On the monetary front, the Argentine Central Bank expanded the monetary base by ARS 585.4 billion in the quarter, recording a 34.5% increase in the last 12 months. Meanwhile, the exchange rate averaged ARS 59.88 per USD in December, a 6% depreciation against the average for September 2019. When compared to December 2018, the Argentine peso recorded a 58.1% depreciation. In December, the average rate on ARS-denominated private sector time deposits for up to 59 days was 52%, 18 percentage points below the average recorded last September. Private sector deposits in ARS amounted to ARS 2.8 trillion, increasing 13.1% during the quarter and 35.4% in the last 12 months. Transactional deposits in ARS rose 20.4% during the quarter and 46% in the year. On the other hand, ARS-denominated time deposits increased 6% in the quarter, increasing 24.9% during 2019.
Private sector deposits in dollars amounted to $19.5 billion, decreasing 8.9% during the quarter and 32.8% in the last 12 months. As of the end of December, peso-denominated loans to the private sector amounted to ARS 1.85 trillion, increasing 11.7% in the quarter and 18.6% when compared to December 2018. In turn, US dollar-denominated loans amounted to $10.3 billion, recording a 23.2% decrease during the quarter and a 32.8% decrease in the year. Turning now to Grupo Financiero Galicia, net income for 2019 was 188% higher than in the previous year, reaching ARS 41.6 billion, which represented a 6.5% return on average assets and a 56.4% return on average shareholder's equity. The profit was mainly due to profit from Banco Galicia for ARS 35.2 billion, from Tarjetas Regionales for ARS 4.7 billion, from Sudamericana Holding for ARS 1 billion, and from Galicia Administradora de Fondos for ARS 307 million.
The profit per share for the fiscal year amounted to ARS 29.13, compared to ARS 10.11 per share for fiscal year 2018. Going to the Q4, net income amounted for ARS 9.3 billion, up 111% from the year-ago quarter, mainly due to profits from Banco Galicia for ARS 7.2 billion, from Tarjetas Regionales for ARS 1.7 billion, from Sudamericana Holding for ARS 242 million, and from Galicia Administradora de Fondos for ARS 31 million. This profit represented a 5.6% annualized return on average assets and a 41.4% return on average shareholder's equity. Banco Galicia net income for the quarter increased 71% from the year-ago quarter as a result of a higher net operating income, mainly related to the growth of net interest income and net income from financial instruments, partially offset.
We are experiencing a momentary interruption in today's conference. Please continue to hold.
[inaudible] I go on now?
Okay. I think it got cut when I was saying that Banco Galicia net income for the quarter increased 71% from the year-ago quarter as a result of a higher net operating income, mainly related to the growth of net interest income and net income from financial instruments, partially offset by higher loan loss provisions. Interest income for the quarter increased 55% as compared to the same period of 2018, primarily as a consequence of higher interest on loans and on repurchase agreement transactions, while interest expenses were up 20%, mainly due to higher interest rates on time deposits. Average interest earning assets grew ARS 90 billion, or 31% year-over-year, and its yield increased 302 basis points, mainly due to an increase in the yield on peso-denominated loans.
Interest-earning liabilities grew ARS 23 billion, or 8%, during the same period. Its cost increased 272 basis points, mainly as a result of increase in the average interest rate on peso-denominated time deposits. Net income from financial instruments increased 26% from the one recorded in the same quarter of 2018, as a consequence of higher profits from government securities due to higher holdings of Argentine Central Bank paper. Profits from gold and foreign currency quotation differences amounted to ARS 3.3 billion, including ARS 2.8 million gained from foreign currency trading, growing 94% when compared to ARS 1.7 billion profit from the same quarter of 2018. Provision for loan losses were 96% higher than in the same quarter of the prior year, mainly due to evolution of arrears in the consumer portfolio and to higher regulatory provisions on the portfolio in normal situation, plus one specific commercial client.
Personnel expenses increased 66% as compared to the year before, mainly due to salary increase agreement with the union, and administrative expenses grew 106%, mainly due to higher maintenance and higher fees and compensation for services. The bank's financing to the private sector reached ARS 369 billion at the end of the quarter, up 28% in the last 12 months, mainly due to the growth of peso-denominated loans, while dollar-denominated financing decreased 1% measured in ARS, but 38% measured in USD. Net exposure to the public sector increased 29% year-over-year, and excluding reliefs, it represented 4% of total assets, compared to 3% at the Q4 of 2018. Deposits reached ARS 398 billion, up 10% in a year, with peso-denominated deposits growing 27%, and U.S. dollar deposits falling 10% measured in ARS and 43% in dollar terms.
The bank's estimated market share of loans to private sector was 11.6%, 106 basis points higher than at the end of the year-ago quarter, and the market share of deposits from the private sector was 9.9%, decreasing 116 basis points in the same period. As regards asset quality, the NPL ratio ended the quarter at 4.4%, recording a 155 basis points deterioration as compared with the 2.9% of the Q4 of the prior year. The coverage of NPLs with allowances reached 110%, up from 103.7% from a year ago. As of the end of 2019, the bank's consolidated computable capital exceeds by ARS 43.1 billion, or 115%, the ARS 37.7 billion minimum capital requirement, and the total regulatory capital ratio reached 17.6%, increasing by 243 basis points from the end of the same quarter of fiscal year 2018.
In summary, during the Q4 of 2019, Grupo Financiero Galicia has shown good results in a very challenging and volatile macro environment, keeping liquidity, solvency and profitability metrics at high levels. We are now ready to answer the questions that you may have. Thank you.
Thank you. If you do wish to ask a question, you may do so by pressing star one on your telephone keypad. If using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one for questions. I'll take our first question, from Alonso Garcia of Credit Suisse.
Good morning, everyone. Thank you for taking my question. My first question is regarding your expectations for loan growth and deposit growth compared to your inflation expectations this year, considering that the base, of course, is lower, but also that the macroeconomic conditions in Argentina remain uncertain for this year. My second question is on the inflation-adjusted accounting that you will be reporting this year, what sort of ROE level do you expect for 2020? What do you think, I know it's hard, but what do you think could be a reasonable, sustainable ROE under this inflation accounting? Thank you.
Hi, Alonso. In terms of loan growth, in this environment of lower interest rates, and also forecasting some recovery in GDP towards the H2 of the year, and as you said, coming from very low starting levels, we are forecasting loans growing around 10 percentage points above inflation. With an inflation of 40%, that is our current number, loans could end up growing around 50% this year. Deposits, something lower, perhaps inflation plus five, in that order. That was the first question. When we speak about the inflation adjustment, we informed in the press release in the last page that what would have been the net worth and the net income of 2019 if inflation adjustment was applied. That number makes the ROE at around 20%-21% in real terms. It's important to see that the nominal ROE was around 56%. The inflation was around 53.8%.
Really the real ROE has nothing to do with the difference between nominal and inflation. For next year, depending on the inflation and also the monthly inflation, because it is very sensitive on each month, we could be thinking in a lower nominal ROE, and somewhat lower real ROE. Really, the adjustment is very difficult to forecast, mainly considering this volatility in the monthly readings.
Great. Thank you very much.
You're welcome.
Thank you. Again, for questions, that's star one. I move to our next question from Carlos Gomez of HSBC.
Hi, good morning. I wanted to ask you about the measures to limit credit card interest rates and the offsetting reduction in reserve requirements that you experience. Do you have a preliminary calculation as to the impact that this might have on your results? Second, I would like to know what you expect your tax rate to be for this year, and whether you can confirm there should be a tax on the inflation-adjusted earnings. Thank you.
Hi, Carlos. The regulation that came the day before yesterday at night put a cap for financing with interest with credit cards. The cap is 55%. That can be compared with around 75%, that was the previous number. It was a formula that took as the base the average cost of personal loans, and that rate was coming down already. Really, the number we should be comparing with is around 71, and now 55. Of course, that has a negative impact, but when we take into account the less reserve requirement we have to have as non-remunerated, that leaves an equivalent amount in deposits. It's really a percentage of the consumption of a program called Ahora [12]. Really, this improvement in reserve requirement or the yield in this reserve requirement is kind of offsetting the reduction in interest rates.
Perhaps something marginally negative, but really we can assume it's almost equal.
Okay, that's useful.
On income tax.
Sorry, still on credit cards. What happens to Tarjeta Naranja? The regulation of that price would be the personal loans plus 25%, and therefore it will be 71% cap?
The change doesn't apply non-bank credit cards. Till now, yes, the cap will be the former one, up to 1.25 times the weighted average cost of personal loans in the system, with some technicalities that some public sector banks are not included in that number. Basically, Naranja is not affected by this cap. In terms of income tax, the effective tax, or the nominal income tax rate, will be 30%. It was to be reduced to 25%, but there was a law that kept it in the same level of 30%, and we calculate the income tax considering inflation adjustment.
Very clear. Thank you very much.
You're welcome, Carlos.
Thank you. If we have any further questions, please press star one. We have another question. It comes from Brian Flores of Citi.
Hi. Thank you for the opportunity to ask a question. We do some deliberation on your NPLs. I was wondering if you are guiding for any figure for 2020, and what are the drivers behind your guidance? Thank you.
Okay. Hi, Brian. We saw an increase in NPLs this quarter, mainly at the bank level from 4% to 4.4%. The coverage is at 110% healthy. We saw an improvement in NPLs in the level of Naranja. This quarter had the particularity of 1 commercial case, wide products retailer, in which we had to provision 1 billion ARS. Without that, NPLs would have been, I would say similar, and also the cost of risk. Well, the cost of risk, instead of being 5.1%, closer to 3.9%. Going forward with this forecasted growth in loans, plus a recovery in the economy sequentially in the Q2, NPLs should be improving, and towards the end of the year, this 4.4% that I was mentioning should be compared with around 3.8%.
Very clear. Thank you.
You're welcome.
Thank you. We'll move to our next question. This is coming from Ernesto Gabilondo of Bank of America.
Hi. Good morning, Pablo. Thanks for the opportunity to make questions. A follow-up in the interest rate cap on credit cards. How much is the average interest rate of your credit card portfolio? What do you think will be the reduction from the one that you are charging to the one that the Central Bank is proposing? Thank you.
Well, when you look at the stock of loans related to credit cards, in December, it was around ARS 95.6 billion, that includes everything from the float or a lot of financing with no interest, lending with installment, also a rural credit card that we have. Really, out of that, the amount subject to financing with this interest rate that was reduced was something lower than ARS 10 billion, ARS 9-point-something billion. The reduction, as I said, was something between or will be, actually, because it will be in March, from levels of 71%-55%. We will be offsetting that with a higher yield on part of the reserve requirement that now we don't have to constitute or we will not have a zero yield.
Okay, perfect. Understood. Thank you very much.
You're welcome, Ernesto.
Our next question comes from Santiago Petri of Franklin.
Hello, Pablo. Good afternoon. The question is related to financial margin. Could you please split what will be the net interest margin from this consolidated financial margin? How do you see this net interest margin and financial margin going into 2020 with all the attempts from the Central Bank to reduce rates? Thank you.
Hi, Santiago. When we speak about the NIM, we see some compression going forward that will be offset with this volume increase. When we speak about NIMs of 20%, the breakdown is something around 28% in pesos and 2% in dollars. The breakdown between pesos and dollars is important. This gap between or the evolution or the different evolution between LELIQ and BADLAR. Lately, LELIQ was going down faster than BADLAR. Putting everything together with 100 basis points reduction in NIMs, we would need around 5% growth in loans in order to offset that. Really in a lower interest rate environment, typically margin compress, but volumes rebound, and it's healthier, really for the sustainability and the need of a financial system for the medium term.
Okay. Thanks. Thanks a lot.
You're welcome, Santiago.
If you have any further questions, please press star one. Once again, that's star one for questions. It appears we have no further questions, sir.
Okay, Ian, thank you. Well, thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Thank you. Good morning, and good afternoon for the ones located in Buenos Aires. Bye-bye.
This concludes today's call. Thank you for your participation. You may now disconnect.