Welcome to the Grupo Financiero Galicia Third 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 and are subject to risk and uncertainty that could cause actual results to differ materially from those fixed rates. According to private estimates, the Argentine economy recorded a 1.3% year over year contraction during the Q3 of 2019 compared to a 0.6% year over year expansion in the 2nd quarter. During the 1st 9 months of 2019, the primary fiscal surplus amounted to ARS 22,900,000,000, exceeding by ARS 25,400,000,000 the target for the period. According to the National Institute of Statistics, the National Consumer Price Index recorded a 37.7% increase during the 1st 9 months of the year. On the monetary front, the Argentine Central Bank contracted the monetary base by 65 point Thank you.
Sorry for that technical problem. I will get back to what I was saying. On the monetary front, the Argentine Central Bank contracted the monetary base by ARS 65,800,000,000 in the 3rd quarter, a 4.9% decrease against the 2nd quarter. Meanwhile, the exchange rate averaged MXN 56.5 per dollar in September, a 29% increase against the average for June 2019. When compared to September 2018, the FX rate increased at 46.4%.
In September, the average rate on peso denominated private sector time deposits for up to 59 days was 60%, 9.1 percentage points above the average recorded last June. Private sector deposits in pesos amounted to ARS 2.3 ARS 2,500,000,000,000, increasing 1.8% during the quarter and 42.5% since September last year. Transactional deposits in pesos rose 7.6% during the Q3 and 37.8% in the last 12 months. Peso denominated time deposits decreased 3.6% in the quarter and picked up 48% year over year. In addition, private sector deposits in dollars amounted to $21,400,000,000 decreasing 31% during the quarter and 20.9% as compared to September last year.
As of the end of the quarter, peso denominated loan to private sector amounted to ARS 1,650,000,000,000, recording a 7.1% increase during the quarter and a 4.6% increase when compared to September last year. In turn, U. S. Dollar denominated loans amounted to $13,400,000,000 recording a 15.1% decrease during the quarter and a 15.7% decrease when compared to September last year.
Ladies and gentlemen, please stand by while we reconnect our speaker. There will be music on the call until it continues. One moment, please.
Thank you. Sorry for another technical problem. I was saying that as a result of the political uncertainty, a country risk premium increased significantly and the dollarization of the economy accelerated. As a consequence, the government took emergency measures, including debt reprofiling and capital controls. Turning now to Grupo Financiero Alicia.
Net income attributable to Grupo for the Q3 of 2019 amounted to ARS 11,600,000,000, 175 percent higher than the same quarter of the previous year, mainly due to profits from Banco Alicia for ARS 10,100,000,000 from Tarjita Reccionares for ARS 1,100,000,000 from 2 Americana Holdings for ARS 228,000,000 and from registered military funders for ARS85,000,000. Increased net operating income of ARS 131,000,000 and partially offset by personnel and administrative expenses of ARS 53,000,000. This profit represented a 7.1% annualized return on average assets and a 58.2% return on average shareholders' equity compared to 3.6% and 34.6% of a year ago. Banco Adhesive net income for the quarter increased 197% from the year ago quarter as a result of the higher net operating income, mainly related to the growth of the net income from financial instruments and to profits from gold and foreign currency potential differences. Net interest income for the quarter increased 14% as compared to the same period of 2018, primarily as a consequence of a 43% higher interest on loans and on repurchase agreement transactions.
Net income from financial instruments increased 167% from the one we called in the same quarter of 2018. As a consequence of higher holdings of Central Bank Paper, Lehiq, partially offset by a lower yield on government securities, mainly treasury bills, the caps. The profits from gold and foreign currency quotation differences amounted to ARS 1,700,000,000, including a ARS 3,800,000 profit.
Ladies and gentlemen, once again, please stand by. There will be music
Thank you. Well, due to these technical problems we are suffering, I would prefer to give you time to Q and A as all the information I was going to read this in the press release. So I'm now ready to answer the questions. Thank you. Perfect.
Thank Your first question comes from Gabriel Nobrega of Citibank. Please go ahead.
Hi, everyone, and thank you for the opportunity. Thank you, Pablo, for the thorough presentation as well. My question is still on the political outlook. I know it's already been 3 weeks since the elections. But I wanted to get a sense from you what are you seeing and then what strategies has the bank been taking having taking into account what you've been seeing?
And I'll make a second question afterwards. Thank you.
Well, it's really hard to say what the elected president is going to do or what regulations, meaning not only regulations just for the financial system, mainly an economic plan or what measures he will take because we don't even know who is going to be the minister the cabinet, all the ministers. So the bank has been focused on being very liquid, both in dollars and in pesos. And I would say, trying to protect as much as possible profitability and the capital situation and asset quality, then we are seeing the first results of all the efficiencies that we have been trying to get with digitalization. But really going forward, we need to see what the economic plan will be, who are going to be the members of the cabinet and what measures can be taken that would affect directly the financial system. Sorry, I don't I wouldn't answer if you have any specific questions regarding that, what we could be doing.
I understand. It's very difficult, so thank you for that. I actually have a follow-up going into the asset quality. During this quarter, I saw that the bank made a lot more of charge offs. And as a consequence, we actually saw the D and T ratios for the bank decreasing.
So what I actually wanted to understand here is why did you make so much higher charge offs this quarter? And if you believe that we are at the peak of the NPL ratios or when could we even reach this NPL? Thank you.
Well, the NPL ratio improved due to the certain, I would say, recovery in the denominator on loans. And also, the bank had sold some individual loan book that was past due for many months. It was around ARS 1,700,000,000. So both effects explain the improvement in the NPL ratio. We think that next year, we could see some recovery in loan demand within an environment with lower interest rates that perhaps will help to improve even further the asset quality.
So perhaps we are close to the highest level. We have to see again economic plan, members of the cabinet, but in theory, we should be closer to the big. Very clear. Thank you. You're welcome.
And your next question is from Alonso Garcia of Credit Suisse. Please go ahead.
Good morning, everyone. Thank you for taking my question. My first question is on taxes. I mean, is this inflation adjustment that you and other banks are doing for taxes, is it still subject to any sort of ruling by tax authority or is it already final? I mean, is there a risk that you can you have to revert these adjustments at the end of the year?
Or is there a risk that you are not going to do it next year if inflation rates also give room for that or is it already something final? And my second question would be on the Lalique position. I mean, we already saw I think we can decline in this exposure in the Q3. My question is if there is still room or appetite on your end to decrease it further? Thank you very much.
Hi, Alonso. In the case of income tax, the law is clear that we can adjust the numbers by inflation in order to calculate the income tax. In the Q3, we did that. The charge was roughly ARS 2,000,000,000. If we hadn't done that, it would have been something around ARS 1,600,000,000 higher, but it's under the current regulation.
In the 2nd quarter, what we did is we did altogether in the 2nd quarter the adjustments corresponding to the 1st and second quarter. But we don't foresee any change. And in the Q4, we should see a similar effective tax rate at the 3rd quarter, around 16%. Regarding the leaks, we decided to be very liquid. So we split, I would say, the exposure to the Central Bank between the LIX and repo transactions.
So there you will see that we have roughly ARS 45,000,000,000 between of Lelyx and another ARS 45,000,000 or ARS 46,000,000,000 with repo transactions. These are shorter term instruments, again, in order to be very, very liquid.
Thank you.
You're welcome.
Your next question comes from Yuri Fernandes of JP Morgan. Please go ahead.
Thank you, gentlemen. I have a question regarding the debt repurfiling. I was unable to find the exact value of the hit on your figures. I think you mentioned $2,300,000,000 only cuts, but not sure if that's the impact from the debt reprofiling. So if you can clarify what was the amount, that would be nice.
And I have a second question regard your loans in dollars. How has been your policy on that? You mentioned about having more liquidity in dollars, but are you landing? What are your strategy for that segment? Thank you.
Okay. Hi, Yuri. The amount of the debt or the impact of the debt we're profiling was around ARS 2,000,000,000. The instruments that we had in August not necessarily are the same that we had at the end of September. So it's perhaps hard to see the exact effect on each different bond.
But it was ARS 2,000,000,000. That is slightly that will be recovered when we collect the remaining 85% of those re profiled short term paper. The loans in dollars, was the decision was to keep on originating loan in dollars to exporters, again, with this same main objective to be very liquid, prepare for, I would say, a worse scenario than the actual one. So we are over liquid and we even have 1,000,000,000 of dollars bills that we imported. So we are prepared and we have been, I would say, we overreacted.
So we are very comfortable and with the decision was to stop originating in dollars and we are offering loans in pesos to exporters.
Great. Thank you.
You're welcome.
Your next question comes from Carlos Gomez of HSBC. Please go ahead.
Yes, hi. Good morning. Two questions. First on the reprofiling, you have the MXN 2,000,000,000 loss you said you might recover. Is there any legal recourse that the bank individually or in association with the other banks can use to address this unilateral refiling of the debt?
And second, what's your expectation for tax rate in 2020? Thank you.
Yes. Well, you mean taking this issue to the courts in order to fight for the reperfibing? Yes. Well, it's not it's very short term really. Not I would say it was not discussed.
It's part of the financial system rules, I would say. Really, it was a very short term postponement of payment. So although the hit in accounting terms was, I would say, significant, if we consider ARS 2,000,000,000 significant, we think we will collect them in the short term.
Okay.
And regarding the income tax rate, yes, it will be 25% next year. Yes. So far, it will be 25%, the income tax rate next year.
Income on inflation adjusted earnings or on nominal earnings?
Adjusted by inflation, the tax rate will be 25%.
Okay. So it's on earnings adjusted by inflation like this year?
Mr. Furavita, there are no longer any questions in the queue. I'd like to hand it back over to you for closing remarks.
Okay. Thank you for attending this call. Sorry for the technical problems. If you have any questions, please do not hesitate to call us. Good morning.
Bye bye.
And this concludes today's call. We thank you for your participation. You may disconnect your lines and have a wonderful day everyone. Take care.