day, and welcome to the Grupo Financieroglycia Second Quarter 2018 Earnings Release Conference Call. This call is being recorded. At this time, I'd like to turn the conference over to Pablo Figueroa. 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 subject to risk and uncertainty that could cause actual results to differ materially from those expressed. According to private estimates, the Argentine economy recorded a 2.5% year on year contraction during the Q2 of 2018 from a 4.6% year over year expansion in the Q1, accumulating a 0.9% year over year growth during the first half of this year, which compares to a 2.9% expansion in the same period of 2017. The primary deficit for the 6 months of 2018 amounted to 0.8%, the ARS 106,000,000,000, overachieving the official target of 1.1%. It is worth highlighting that the government has decided to strengthen this year primary fiscal goals, which now stand at 2.7%. The previous target was 3.2%, entailing a 1.1% reduction in terms of GDP compared to the 2017 result.
According to the National Institute of Statistics, the National Consumer Price Index accumulated an 8.8% increase during the Q2 of the year, reaching an annual inflation of 29.5% in trailing 12 months. On the monetary front, the Argentine Central Bank expanded the monetary base by ARS 48,200,000,000 in the Q2 of the year, reaching a 31% growth in the last 12 months. Meanwhile, the exchange rate averaged ARS 26.61 per dollar in June, a 31.6% depreciation against the average of March 2018. When compared to June 2017, the Argentine peso recorded a 65.1% depreciation. In June, the average rate on peso denominated private sector time deposits for up to 59 days was 30.6%, 775 basis points above the average recorded in last March.
Private sector deposits in pesos at the end of June amounted to almost ARS 1618,000,000,000, increasing 8.9% during the quarter and 28.1% in the last 12 months. Transactional deposits in pesos rose 12.1% during the quarter, while peso denominated time deposits increased 5.6%. At the end of June, peso denominated loans to the Peritector amounted to ARS 1538,000,000,000, recording a 7.5% increase during the quarter and a 48.5% increase during the last 12 months. Turning now to Grupo Finaciro Galicia. Net income for the quarter amounted to nearly ARS 2,800,000,000, 25% higher year over year.
This was mainly due to profits from Banco of Alicia for ARS 2,000,000,000 intaghetta Regionales for ARS 567,000,000 in Galicia, Dimitradora Fundos ARS 4121,000,000 and in Suramericana Holdings, ARS 420,000,000. Going to Banco Galicia, which accounted for 70% of Grupo's results from equity investments, net income for the quarter decreased 5% from the year ago quarter, mainly as a consequence of the split up of Parieta Regionales. Excluding this effect, net income increased 18% in the last 12 months. This was a result of 107% increase in provision for loan losses and a 41% increase in operating expenses, offset by a 43% higher net interest income, a 44% higher net income from financial instruments and a 34% increase in net fee income. The growth of net interest income was mainly due to the 67% increase in the portfolio of loans and financing to the private sector, offset by lower spread.
Average inter selling assets grew ARS 88,000,000,000 or 61 percent year over year, and its yield increased 97 basis points, mainly due to 195 basis point increase in the yield on loans, which was partially offset by 111 basis point decrease in the yield of government securities, primarily related to the decrease in the market price of the treasury bonds from the province of Buenos Aires. Interest bearing liabilities grew ARS 85,000,000,000 or 67 percent during the same period, and its cost increased 132 basis points, mainly as a result of a 2 15 basis points increase in the interest rate on time deposits and a 4 86 basis points increase on debt securities. Provision for loan losses for the quarter amounted to ARS 1,500,000,000, 107% higher than in the same quarter of the prior year, mainly due to those related to the individual's portfolio and to an increase of regulatory provisions on loans in normal situation as a consequence of the growth in volume. Personal expenses increased 26% as compared to the year before, mainly as a consequence of salary increase agreement with the unions, And administrative expenses grew 41% due to increases of 61% of maintenance expenses and 163% in fees and compensation for services provided to the bank.
The bank's financing to the private sector reached ARS 245,000,000,000 at the end of the quarter, up 67% in the last 12 months, and deposits reached ARS 261,000,000,000, up 67% in the year. The bank's estimated market share flow to private sector was 10%, 13 basis points higher than at the end of the year ago quarter, and the market share of deposits from the private sector was 10.4%, recording 103 basis point increase in the same period. As regards asset quality, the NPL ratio ended the quarter at 2.25 percent, recording a 38 basis points deterioration as compared with the 1.87% of the Q2 of the prior year, and the coverage of NPLs with allowances reached 102.3%, down from 120.2% from a year ago. As of June 30, 2018, the bank's consolidated convertible capital exceeded by ARS 16,000,000,000 or 63%, the ARS 26 1,000,000,000 minimum capital requirement, and the total regulatory capital ratio reached 13.39%, increasing 170 basis points from the same quarter of fiscal year 2017. The bank's liquid assets at the end of the quarter represented 74% of the bank's transactional deposits and 48% of its total deposits compared to 60% and 38% ratios from a year before, respectively.
Going now to Targita Regionales, which accounted for 20% of Grupo's results from equity investments. Net income grew 35% year over year due to a 42% increase in net interest income and a 19% increase in net fees. These increases were partially offset by a 61% increase in provision for loan losses of 23% in personnel expenses and of 19% in administrative expenses. Net loans and other financing grew 37%, while the NPL ratio reached 6.44%, improving 182 basis points during the last year and the coverage win provisions for loan losses was 107%, up from 100% as of the end of the Q2 of last year. We are now ready to answer the questions that you may have.
Thank
And our first question will come from Mario Pierry with Bank of America Merrill Lynch.
Good morning, everybody. Let me ask you two questions, Pablo, please. First one, we saw this big increase in your provision charges this quarter. They almost doubled year on year. Can you talk about where you're seeing the stress in asset quality?
You mentioned some consumer sectors, but I'd like to understand better which products specifically. Also when you look at your corporate portfolio, what concerns you the most? Second question is related also to your appetite for granting credit now. We saw that your SME portfolio only rose 3% year on year. I'd like to understand better what happened there.
Also when I look at your corporate loan book, you posted very strong growth, but I wanted to understand the growth that came from just the depreciation of the currency. And finally, your appetite for growing your individual loans. Thank you.
Okay. Hi, Mario. The cost of risk increased both at the bank level and the regional credit card companies. NPLs improved and coverage improved as a result of some sales of NPLs that were due more than a year. The cost of risk was affected mainly in the individual portfolio.
The lower the income, the worst behavior in general. In terms of products, I would say, except mortgages that have no deterioration at all and it's a very new product, we can see some in personal loans and some in credit card financing. Going forward, well, and this also another factor for this quarter increasing in the cost of risk for provisioning is that the devaluation meant that dollar denominated loans expressed in pesos increase the size and the loans that are in normal situation, we have to make a provision of 1% on that. So the growth in volume, both in pesos and in dollars plus the devaluation, makes that the increase in this, I would say, regular jewelry provision is higher. Going forward, we are forecasting cost of risk at the bank level at around 2.6% for the next two quarters, basically the 3rd and 4th.
That could take NPLs at year end at around 2.7%. In the case of Naranja, basically, the regional credit card company, the last number of NPLs was 6.4%. We are expecting some deterioration towards 7% to 7.2% to 7.3% right now. This quarter, there was a big impact on inflation. June, I would say May June month inflations were high.
Actually June was the highest of the year, around 3.7%. And the catch up with salaries definitely has another speed. So going forward, we are not or we are expecting lower cost of risk. In terms of appetite for credit, yes, as you mentioned, the main driver of loans of loan growth was the corporate. SMEs was a little bit more, I would say, conservative in loan demand.
It's not a question of risk. Of course, we analyze the credit portfolio with a lot of attention. It's more a situation of this very high interest rate environment that makes the companies that can handle not to take debt to wait till interest rates go lower. In the case of corporates, also they have basically exporters the ability to decide if they take dollars or pesos and also part of the increase in the corporate loan book is due to dollar loans. And to finish perhaps, what we saw in terms of products is the shortening of the duration of the loans Instead of CapEx loans and mortgages, we are seeing more credit card, personal loan type of loans for individuals and working capital lines for companies.
Okay. That's clear. And any sense that you can give us like which sectors are you most concerned about given all the uncertainty going on, this big devaluation, the higher interest rates, are there any sectors in particular that you're most concerned about?
Well, more than the devaluation in this last month, I would say, is all these scandals on public works. So we are monitoring closely all the construction companies. Regarding the evaluation, the private sector in Argentina is typically long in dollars. So devaluation means a wealth effect. And they are in general not pure importers.
It's a mix of imports and exports. And generally, exporters are doing better, are going to be better. There is some lag. You don't see the increase in exports so quickly as the stop of imports. So really, the more than the devaluation, the other sector is the one that we are monitoring closely.
Okay. Thank you.
You're welcome.
Our next question will come from Nicolas Riva with Bank of America.
Yes. Thanks very much, Paolo, for taking my questions. Two questions. The first one is maybe a follow-up on Mario's question on loan growth. Actually, I'm a bit surprised about these high levels of loan growth.
There is a bit of an effect of the devaluation that you said. But still, even in pesos in local currency, you're growing the loan book more than 50%. And it's not just you, I mean, we saw very high growth for the banking system in June. I was expecting to see in June some effect from the recent economic crisis. We didn't see that in terms of credit growth.
So maybe if you can explain what's driving this such a fast pace of credit growth when actually the economy is slowing down and your concern about asset quality deteriorated in coming quarters? And then second question on the reserve requirements, Central Bank announced yesterday this increase in reserve requirements. We know it's negative for you given that they are not going to be remunerated. But any thoughts in terms of how you assess really the impact of this in your net profits? And what can you do to maybe mitigate the impact of this?
Thanks.
Yes. Hi, Nicolas. Yes, as you said, both in pesos and in dollars converted to pesos, adding both the loan growth in the last 12 months was significant, 67% on as a whole and 50 5% in pesos. We are seeing, as I said, demand for personal loans, credit cards for individuals and working capital lines for companies. There should be some deceleration in the second half.
But if the loans grow just as the expected inflation, we could be ending up at around something around 45% total loan growth. So yes, definitely, the loan growth will be high in nominal terms in pesos and in dollars, but with some deceleration in the Q2. The agricultural sector could be a good sector for the second half of the year and also for next year without the drought. All the projections are that it's going to be a very good year for the agricultural sector and its chain value. And also, the PPP program on the 6 corridors could be also a driver of growth.
And that has a spill effect on many SMEs. In terms of reserve requirements, yes, in the last 2 months, the Central Bank increased the reserve requirements by 11 percentage points, 5 percentage points remunerated. We purchased around ARS 4,000,000,000 of bond that yields 26%. It's about 2020. The other 6% to tranches of 3% are not remunerated.
That means that it's an opportunity cost. Instead of investing this 6% in loans or in Leliqs or Levacs, definitely it's at 0. So the impact instantly would be an increase in the cost of funding. That is how we see it, and we try to mitigate it, increasing the interest rate we charge on loans. But the medium term impact, in my opinion, is good in terms that the Central Bank will be able to reduce the stock of Levacs.
Actually, the objective is to eliminate Levacs for investors with the exception of banks. So there could be a short term pain that we are trying to mitigate, but in the medium term, it's something better for the system.
Pablo, maybe just one follow-up on the second question. I don't know if you actually assessed the impact or if you did the numbers. But I was doing the numbers and just on the measure from yesterday from the Central Bank on the increase in the reserve requirements, assuming that these are held at the current level for the next 12 months, I was getting an impact of at least 10% in net profits. And again, it's just for the big banks. Are those numbers in line with your own projections in terms of the impact of this?
Well, in our case, the easy calculation would be if we do not if we do nothing, if we don't try to mitigate the measure, you can take roughly ARS 160,000,000,000 and the difference would be between, let's say, 45% and 0. Again, that would be a 4 year and if we take no action in terms of increase in the interest rate we charge.
Okay, fair enough. Thanks, Paolo. Thanks very much.
And also to complete the answer, the expectation is that reserve requirements will gradually return to the previous levels. Gradually, I'm not saying in the next couple of months, but it's not going to last forever. That's the idea. Sure.
Thanks,
Louis. Our next question comes from Frederic de Maurice from UBS.
Thank you. Good morning, everyone. Good morning, Pablo. Thank you for the opportunity. Two questions on my side.
I would I was curious to hear your latest thoughts on OpEx growth, especially with the high inflation, the high rates, what you're seeing for the next few quarters. And if you're changing anything in your strategy for branch openings, for the cost controls or anything else you would like to mention? And then second question, could you please give us an update on Prisma and what we should expect for the next few months? Thank you.
Okay. Hi, Fred. In terms of OpEx, we are forecasting now with a higher expected inflation that our administrative expenses could be in line with inflation, basically similar percentage increase. And we, yes, decided to slow down our expansion program. It wasn't that, I would say, aggressive, but we diminish the rhythm of branch openings.
So OpEx should be aligned with inflation. Also, if I may add, our fee income is likely to be some percentage points above inflation. With this change in the expected inflation, our estimates definitely are changing. In the case of Prisma, the 14 banks owners of Prisma are well, told the government in the head of the Central Bank, the antitrust agency and other authorities that we are going to postpone the sale. They understood the situation in the agreement with the government that was a marked loss.
So we have no deadline, no schedule. The idea is to keep it on sale, but with no certain date.
That makes sense. Thank you, Pablo.
You're welcome.
Next, we'll take a question from Octavio Tangeli with Credit Suisse.
Hi, thanks for taking my questions. I have two questions actually. The first one is, we saw that margins have slightly compressed this quarter. I'd like to understand what you think is going to be the outlook for the second half of the year? And my second question is regarding inflation accounting.
We have been receiving some we have been talking with investors that they believe that inflation accounting could be implemented in Argentina in the short to medium term? I'd like to know if you have a view on that or not. Thank you.
Yes. Hi. Well, margins were impacted financial margin, more than net interest margin, was impacted by mark to market of these province of Buenos Aires bonds. If the yield on our the same of the previous quarter, the net financial margin would have been roughly 200 basis points higher. Going forward, we see many variables moving.
One was or is this increase in reserve requirements that, of course, we will try to mitigate that, but we have to see the velocity and the degree of mitigation. We are seeing also an increase in the spread in our dollar position. Basically, we are having a lower funding cost in dollars and higher interest in loans in dollars we grant. We are seeing also some change in the breakdown of deposits with a higher growth in time deposits. And of course, we are having higher yields on our LELIX, Lebaggs portfolio.
So going forward, of course, it's, I would say, impossible to project mark to market effects. But considering all these measures or variables, we could think in something flattish from the Q2 levels. At the beginning, we were forecasting some increase in margin due to the increase in interest rates with this increase in reserve requirements that will offset our previous expectation. In terms of inflation accounting, IFRS says that if you have 3 years of accumulated inflation higher than 100%, you have to make the adjustment. On the other hand, our authority or regulators are the Central Bank and the local Commission Nacion de Valores or local SEC.
Plus there is or additionally, there is a decree from the executive power from year 2003 that prohibits inflation adjustment. So we depend on that. That is the last news we have. Theoretically, what we have with inflation accounting is that you have a monetary asset subject to inflation, you lose money. If you have a liability monetary liability subject to inflation, You make money, you have to look at the net position.
And also, we should have need to know the procedures to calculate the effect in terms of the series of indices, if it is wholesale or CPI, well, there are many uncertainties in order to calculate that. Clearly, the higher the inflation, the higher the impact. And to finish with this long answer, perhaps the regulators, as they are thinking that inflation is going to be lower in the coming years, they would prefer to postpone the decision or not to take it. That's a personal opinion.
That's very clear. Thank you.
You're welcome.
Our next question will come from Alejandra Aranda from Itau. Hi, good morning, Paolo. Most of my questions have been answered, but could you give us a little bit of guidance in terms of what to expect for efficiency in the second half?
Yes. Hi, Alejandra. We keep with our objective of improving efficiency around 100 basis points this year. The revenue line has been volatile due to this mark to market and changes in the reserve requirements or more than that more than speaking about the past are going to be volatile due to the reserve requirement. But we are keeping that objective of improving efficiency.
Okay. Thank you very much.
You're welcome.
We do have a question from Santiago Petri from Templeton.
Hi, good afternoon, Pablo. Can you remind us what is the sovereign asset restriction on the balance sheet, the regulatory cap that the financial intruders and Argentina can hold on sovereign assets?
Yes. Let me see one moment. Hold on. Sorry, Santiago. I'm looking at the looking for the regulations.
In the meantime, in our case, it was close to 8% of total assets. At the end of June, half roughly half were Central Bank Paper, the other were different instruments. A big portion of that was the both 2020 that is used as a liquidity requirement. The limits are related to the regulatory capital and they make different limits between national government exposure and the rest of the sub sovereign. I don't want to tell you a wrong number.
Someone
is looking
here for
okay, sorry for that.
I can call you later. Sorry.
No problem. I can call you later. Thanks.
Our next question will come from Alonso Aramburu from BTG.
Hi, good morning. Thank you for the call. I have a follow-up on loan growth. We saw very nice growth at the bank, but in Carjeta Fresenales, Fresenales, the growth was below the growth of the bank. So just wondering what your expectations for growth in Tarjeta seats and whether that can grow above inflation?
Alonso, yes, the growth in the loan book of Targettas Regionales is always more in line with inflation that is related to consumption basically. So they are our expectations on real loan growth is small. The growth is, I would say, more vegetative or with the number of clients and statements and not so much in real terms. That's the, I would say, the characteristic of the business.
Okay. And maybe just to follow-up on when you put all your lines together and you look at the profitability of the bank, I mean, what are your expectations in terms of ROE for this year, assuming, I guess, rates remain relatively stable at least for the next few months?
Yes. For the full year, we are forecasting a high 20s for Grupo Financiro Valencia.
Great. Thank you.
You're welcome, Alonso.
Next, we'll take a question from Gabriel Nalberto from Citi.
Hi. Thank you for the opportunity. I have a follow-up. I know that there are a lot of moving parts for your margins, but could you just maybe give us a sensitivity like how much could 100 bps expansion in the reference rate impact your NIMs? And I have a second question.
Could you maybe talk more about your digital strategy and if you believe that by implementing it and then moving forward with it, you would be able to better service your clients even though you are beginning to reduce the pace of your branch expansion? Thank you.
Yes. Hi. Well, you said 100 basis points, NIM, compression in the reference rate, right? Yes. What I want
to understand is for every 100 bps expansion in the reference rates, how much is translated into your MEMS?
Okay. Expansion. Well, let me make a quick calculation. Roughly 40 basis points, Take it as a quick and I would say even an educated guess. I don't have it calculated like that.
Going to the digital issue, well, we have been investing a lot in digitalization, both as the experts say, the front end and the back end. The branch expansion going parallel with the investment in digital because what we see is that clients, individuals and also SMEs or the agricultural sector prefer to have a multichannel approach. So they want to for certain transactions or operations or requests, they like to have a face, a human in front, although the transactions are done 90% electronically. We already have many digital, I would say, releases. For example, our segments, even we have Galicia Move, that is a segment in which you can open an account completely digitally without the need to go to any branch.
It was basically at the beginning launch for university students. Now it's a full product or segment for any client. We have a very good cell phone application, voted by customers and also very good online banking and office banking, as we call it, for companies. So the investment is, I would say, permanent, digitalizing the processes basically, so that all the operations become digital.
All right. That's very clear. Thank you.
You're welcome. I have the information, sorry, for Santiago on the limits on the exposure to the government. The maximum exposure to the national government is 50% of the regulatory capital and 75% on the regulatory capital is adding the provinces or other public sector entities. So 50,000,000 on the regulatory capital with just the national government, 75,000,000 with the provinces.
And I have a question from Rob Schupper from Ashmore.
Hi. Thanks for the call. I just wanted to come back on inflation and efficiency. What's currently for your forecast, like what do you assume for inflation for the rest of the year? And when do you expect it to peak in Argentina from a macroeconomic perspective?
And then if we look at your costs at the bank, when do you expect the highest inflation in your cost line should appear? Is it sometime later this year? Or is it kind of early next year?
Yes. Hi. Well, from a monthly inflation point of view, perhaps June was the highest month. Now we could see some well, for example, July was 3.1%. And depending on certain tariff increases on utilities, mainly natural gas, electricity or transportation, we could have some lower monthly inflation 1 month and perhaps some increase in the next one.
So for the rest of the year, we are forecasting our chief economist is forecasting that the annual inflation will be close to or let's say the range between 30% 32%. For next year, the government is forecasting a reduction in inflation, our chief economist also. I think the objective of the government is closer to 17. Percent, in our opinion, will be something above 20%. We have to of course, all these projections on macroeconomic variables are really moving targets.
If we were to discuss what we were thinking at the beginning of the year in terms of GDP deficit exchange rate and inflation, all the numbers now are very different. So with the information we have today, these are the expectations. And for this year, our administrative expenses should be in line with inflation. For next year, with lower inflation, in nominal terms, should also be, I would say, more in line with that lower inflation. Of course, in this high inflation environment, you will not see a reduction in administrative expenses.
So we must measure it comparing it to inflation.
Great. And just on staff costs and wages. Have you already had to give pay rises? Or is there a date already set for the kind of next pay rise or negotiations? Like how is it working?
Yes. We have agreed with the we I mean the banks with the banking union at the beginning of the year or I would say April, I think it was the month, 15% increase. It was a 10% increase for the 1st 4 months of the year, then an additional 5% in the month of May. So but the 5% was considering as based the December salary. So it was not capitalized.
It was 15% at the end of May. In July, we received another 5%. So the accumulated number is 20% in July. And it's likely that the union will request another increase towards, I would say, the Q4 in order to reduce the gap with this expected inflation. As these partial increases are not retroactive for the full year, it's likely that the cost or the wages will increase around, let's say, 19%, 20%.
This will be or should be the number. We must add then the increase in personnel. So to get to the cost of personnel, that on a, I would say, per capita basis, this should be the percentage increase.
Great. Thank you.
You're welcome.
Our next question will come from Alan Nicolai from Bradesco.
Hi, guys. Thanks for the call.
I just want to get
a little more details on the duration, particularly on your FX denominated loans. And secondly, if you can talk a little bit more on capital. I mean, the Tier 1 dropped to 10%. And if you are growing what you said you are growing in terms of loans and the return you are targeting. I mean, your Tier 1 could get really narrow versus the requirements.
So I guess, just want to hear a little bit more about this topic, if you may.
Yes. Hi. Well, the duration of our loans as a whole is close to 7 months, and 75% of our total loans mature within 1 year. This is as of June. In dollars, it's very similar right now.
The yes, with the devaluation the devaluation was one of the reasons why the capital ratio went down because in peso terms, we increased our risk weighted assets more. So as of June, as you said, the Tier 1 ratio was 10.3 percent. The total capital ratio was 13.4 percent. We expect that this ratio should be improving gradually towards the end of the year, Either not increasing that much our loan book or taking other actions, we are forecasting good results. So the expectation is for improvement in the Tier one ratio.
Okay. Thank you. Very clear.
You're welcome.
Our next question will come from Tunde Oho with Hardee Loevner.
Good afternoon, Pablo. I just want to follow-up on the answer you gave on the asset quality earlier. You gave an indication of cost of risk for the bank to be about 2.6% for the next two quarters. But what about the regional credit card company? Because I think that's even more risk.
What's your expectation for cost of risk evolution over there given what's happening in the macro climate environment?
Yes. Hi, it's Andy. Well, in the 4th quarter in the Q2, sorry, the cost of risk of the credit card business increased to levels of 9.8 percent. We are forecasting some reduction in that cost of risk, but to levels of the 7.6 percent to 8% level we were seeing in previous quarters. That segment was particularly affected by this gap between inflation and salary agreements with different unions in different parts of Argentina.
The credit card companies also are, I would say, suffering from some, I would say, deceleration in the economy in the end of Argentina due to the drought, but we are gradually seeing some improvements. And in July at the end of June, we have a half salary an additional half salary is urgent and low. So typically July is better for collection. So these are the type of cost of risk we are seeing.
Okay. Thanks very much. The follow-up question I have is more sort of a high level question to you. What are your biggest worries as a bank now as you navigate through these tough macroeconomic conditions and sort of things changing every day and the Central Bank sort of making all these pronouncements. Are there things you could point out to me as the biggest risk or concern to you managing the bank?
Well, I think the main concerns are the stabilization of the macro economy. We think that the government is very focused in reducing the fiscal deficit. The previous, I would say, model was to gradually reduce the fiscal deficit, financing the gap within the international capital markets. Now that international capital markets are kind of shut, This reduction in fiscal deficit must be done quicker. And the main objective of the Central Bank is to stabilize the effects with this at these levels.
The current account deficit should be improving definitely. But in order to stabilize the effects, the Central Bank raised interest rates significantly. So the expectation or what we need to see is that the Central Bank will be able to gradually begin reducing the interest rates so that loan demand returns to previous level in which it was growing very fast and with longer term products and with lower margins. Now we are making money with a different mix, higher margins when we speak of interest we make, but with lower real loan growth. To monitor for the economy, I think I would say that if each quarter, national government is able to show an overachievement of fiscal deficit, it's great news and also the reduction in inflation.
And I show we have no further questions in the queue at this time.
Okay. Thank you all for attending this call. If you have any questions, please do not hesitate to contact us. Good morning. Good afternoon.
Bye bye.
Once again, that does conclude our conference for today. Thank you for your participation.