Welcome to this Grupo Financiero Galicia 4th Quarter 2019 Earnings Release Conference Call. This call is being recorded. At this time, I would like to turn the call over to Pablo Fervida. Please go ahead, sir.
Thank you. Good morning and welcome to this conference call. I will make a short introduction and then 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 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 quarter of 2019. As a consequence, according to prior estimates, the economy accumulated a 2% fall during 2019 and the primary deficit reached 0.4 percent 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 585,400,000,000 in the quarter, recording a 34.5% increase in the last 12 months.
Meanwhile, the exchange rate averaged Ps.59.88 per dollar 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 peso 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 pesos amounted to ARS 2.8 trillion, increasing 13.1% during the quarter and 35.4% in the last 12 months. Transactional deposits in pesos rose 20.4% during the quarter and 46% in the year.
On the other hand, peso denominated pen deposits increased 6% in the quarter, increasing 24.9% during 2019. Private sector deposits in dollars amounted to $19,500,000,000 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 1,850,000,000, increasing 11.7% in the quarter and 18.6% when compared to December 2018. In turn, U. S.
Dollar denominated loans amounted to $10,300,000,000 recording a 23.2% decrease during the quarter and a 32.8% decrease in the year. Turning now to Rupo Financiero Galicia. Net income for 2019 was 188% higher than in the previous year, reaching ARS 41,600,000,000, which represented a 6.5% return on average assets and a 56.4% return on average shareholders' equity. The profit was mainly due to profit from Banco Alicia for ARS 35,200,000,000 from Targeta Regionales for ARS 4,700,000,000, from Sur Americana Holdings for ARS 1,000,000,000 and from Galicia and Isabella Fundos for ARS 307,000,000. The profit per share for the fiscal year amounted to ARS 29.13 compared to MXN 10.11 per share for fiscal year 2018.
Going to the 4th quarter, net income amounted for ARS 9,300,000,000, up 111% from the year ago quarter, mainly due to profits from Banco Alicia for ARS 7,200,000,000 from Tarcita Recionales for ARS 1,700,000,000 from SUA Americana Holdings for ARS 242,000,000 and from Galicia and Mitera Economos for ARS 31,000,000. This profit represented a 5.6% annualized return on average assets and a 41.4% return on average shareholders equity. Banco Hipoca 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.
Please go ahead. I go on now. Okay. I think it was cut when I was saying that Banco Valencia net income for the quarter increased 71% from the year ago quarter as a result of the 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 90,000,000,000 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 bearing liabilities grew ARS 23,000,000,000 or 8 percent during the same period and its cost increased to 122 basis points, mainly as a result of the increase in the average interest rate on peso denominated term deposits. Net income from financial instruments increased 26% from the one recorded in the Q2 of 2018 as a consequence of higher profit from government securities due to higher holdings of Argentine Central and Paper. Profits from gold and foreign currency quotation differences amounted to ARS 3,300,000,000 including ARS 2,800,000,000 gain from foreign currency trading, growing 94% when compared to ARS 1,700,000,000 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 our peers in the consumer portfolio and to higher regulatory permissions on the portfolio in normal situation plus one specific commercial client.
Personal 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. Trans financing to the private sector reached ARS 369,000,000,000 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 pesos plus 38% measured in dollars. Net exposure to the public sector increased 29% year over year and excluding the LIFs, it represented 4% of total assets compared to 3% at the Q4 of 2018. Deposits reached ARS398,000,000,000, up 10% in the year with peso deominated deposits growing 27% and U. S. Dollar deposits falling 10% measured in pesos and 43% in dollar terms.
The bank's estimated market share of loans to credit sector was 11.6%, a 106 basis points higher than at the end of the year ago quarter and the market share of deposits from the credit 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%, reporting 155 basis points deterioration as compared with the 2.9% of the Q4 of the prior year. And the coverage of NPS with allowances reached 110%, up from a 103.7% from a year ago. As of the end of 2019, the bank's consolidated comfortable capital exceeded by ARS 43,100,000,000 or 115 percent, the ARS 37,700,000,000 minimum capital requirement and the total regulatory capital ratio reached 17.6 percent increasing by 243 basis points from the end of the same quarter of fiscal year 2018. In summary, during the Q4 of 2019, Gugo Financiero Alicia 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. 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 macroeconomic conditions in Argentina remain uncertain for this year? And my second question is on the inclusion of adjusted accounting that you will be reporting this year, what sort of ROE level do you expect for 2020? And what do you think I know it's hard, but what do you think would be a reasonable sustainable ROE under these inputs in accounting?
Thank you.
Okay. Hi, Alonso. In terms of loan growth in this environment of lower interest rates and also forecasting some recovering GDP towards the second half of the year. And as you said, coming from very low starting levels, we are forecasting loans growing around 10 percentage points above inflation. So 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 5% in that order. When we speak about that was the first question. When we speak about 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 is made the ROE at around 20% to 21% in real terms. It's important to see that the nominal ROE was around 56%. The inflation was around 53.8%.
So 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's very sensitive on each month, we could be thinking in lower nominal ROE and somewhat lower real ROE. But really, the adjustment is very difficult to focus mainly considering this volatility in the monthly readings.
Great, Peter. Thank you very much.
You're welcome.
Thank you. And now we'll 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 experienced. Do you have a preliminary calculation as to the impact that this might have on your results? And second, I would like to know what you expect to your tax rate to be for this year? And whether you can confirm that it 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 for with credit cards. The cap is 55%. That can be compared with around 75%, that was the previous number. But it was a formula that took as a 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 at non remunerated that leaves an equivalent amount in deposits. It's really a percentage of the consumption of a program called Hauradocia. But really this improvement in reserve requirement or the yield in this reserve requirement is kind of offsetting the reduction in interest rate, perhaps something marginally negative, but really we can assume it's almost equal.
Okay. That's helpful.
On the income.
Sorry, still on credit cards, what happens to target an answer? The regulation of the price would be the personal loans plus 25%, and therefore, it will be 71% up?
The change doesn't apply non bank credit cards. So till now, yes, the cap will be the former one, 1 point 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. But basically, Naraha is not affected by this cap. In terms of income tax, the effective tax will be or the nominal income tax rate will be 30%. It was to be reduced to 25%, but there was a lot that kept it in the same level at 30% and we calculate the income tax considering inflation adjustment.
Okay. Thank you very much.
You're welcome, Carlos.
Thank you. We have another question. It comes from Brian Flores of Citi.
Hi, thank you for the opportunity to ask the
question. We saw some deterioration on your NPLs and 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, a white product retailer, which we had to provision ARS 1,000,000,000. 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 percent closer to 3.9%. So 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 Eu 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 going 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? And 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.
[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Well, when you look at the stock of loans related to credit cards, In December, it was around ARS 95,600,000,000, but that includes everything from the flows or a lot of financing with no interest, lending with installments, also a rural credit card that we have. So really out of that, the amount is subject to financing with this interest rate that was reduced was something lower than ARS 10,000,000,000, 9 point something 1000000000. The reduction, as I said, was something between or will be actually because it will begin in March from levels of 71% to 55%. And 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 0 yield.
Okay, perfect. Understood. Thank you very much.
You're welcome, Ernesto.
And our next question comes from Santiago Petri of Franklin.
Hello, Paolo. 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? And 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 means of 20%, the breakdown is something around 28% in pesos and 2% in dollars. So the breakdown between pesos and dollars is important. Also this gap between or the evolution or the different evolution between Leliq and Bvlar.
Lately Leliq was going down faster than Bvlar. But 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, margins 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,
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 one side.
Bye bye. This concludes today's call.
Thank you for your participation. You may now disconnect.