Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia fourth quarter 2026 earnings call. This conference is being recorded, and the replay will be available at the company's website at gfgsa.com. We would like to inform you that all attendees will only be listening the conference during the presentation, and then we'll start a question and answer session when further instructions will be provided. 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. Investors should be aware of events related to the macroeconomic scenario, the financial industry, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements.
Now, I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference.
Thank you. Thank you, everybody. Good morning. Although activity levels in February stood 2.2% below those observed in December 2025, high frequency official indicators of March point to a constructive short-term momentum. In this regard, the manufacturing production index increased by 3.2% month-over-month on a seasonally adjusted basis, while the Synthetic Construction Activity indicator, ISAC, rose by 4.7% month-over-month, also seasonally adjusted. In the first quarter of 2026, the primary surplus stood at 0.4% of GDP compared to a primary surplus of 0.5% in the first quarter of 2025. The result was explained by a 22.4% year-over-year increase of revenues, whereas primary spending rose 25.9%, in both cases, increasing below inflation rates.
The National Consumer Price Index accumulated a 9.4% increase during the quarter. Monthly inflation rose from 1.5% in May 2025 to 3.4% in March 2026. On a year-over-year basis, inflation stood at 32.6% as of March. Following a 2025 marked by increasing volatility resulting from the electoral process, the spike in volatility has faded, with the exchange rate and interest rates showing clear signs of stabilization. As of January 1st, 2026, both the lower and the upper limits of the exchange rate band began to adjust on a monthly basis, in line with the latest available monthly inflation data published by INDEC T minus two.
In March 2026, the exchange rate averaged ARS 1,396 per US dollar, reflecting a 23.4% year-over-year depreciation. In March 2026, the average rate on Argentine Peso-denominated private sector time deposits for up to 59 days stood at 27.9%, 1.6 percentage points below the March 2025 average. Private sector deposits in Argentine Peso averaged ARS 108.3 trillion in March, increasing by 4% during the quarter and 34.4% in the last 12 months. Time deposits rose 13.8% during the quarter and 41.7% in year-over-year terms. Argentine Peso-denominated transactional deposits decreased 6.4% during the first quarter, but increased 25.7% in year-over-year terms.
Private sector dollar-denominated deposits amounted to $38.7 billion in March 2026, increasing 6.2% during the quarter and 30.4% in the last 12 months. Argentine Peso-denominated loans to private sector averaged ARS 92.2 trillion in March, showing a 5.3% quarterly increase and a 51.7% year-over-year rise. Private sector dollar-denominated loans amounted to $20.5 billion, recording a 12.5% quarterly growth and a 45.5% annual increase. Turning now to Grupo Galicia. Net income for the first quarter amounted to ARS 66.5 billion, 66% lower than in the previous year, which represented 0.6% return on average assets and a 3.2% return on average shareholder's equity.
This result was mainly due to profits from Banco Galicia for ARS 47.7 billion, from Galicia Asset Management for ARS 34 billion, from Galicia Seguros for ARS 12.5 billion, and from Galicia Securities for ARS 1.5 billion, partially offset by an ARS 18.6 billion loss from Naranja X. Banco Galicia net income improved by ARS 162.6 billion compared to the fourth quarter of 2025. Although results continue to be impacted by elevated loan loss provisions, charges declined quarter-on-quarter in line with improved delinquency rates. Net interest income was pressured by lower intermediation volumes. However, the financial margin continued its sequential recovery. Also, seasonal factors typical of the first quarter led to lower fee income, while expenses reflected efficiency gains from the integration process.
Operating income increased 153% quarter-on-quarter, driven by an 11% rise in net operating income, mainly reflecting a 25% reduction in loan loss provisions, partially offset by lower net interest income amid reduced average intermediation volumes. Expenses declined 17% quarter-on-quarter, reflecting efficiency gains from the integration with Galicia Más, the former SCC. Despite interest rate volatility during January and February, the financial margin improved sequentially and closed the quarter at 16.7%, while results from government bonds showed a favorable trend toward quarter end.
Average interest earning assets reached ARS 26 trillion, 4% lower than in the previous quarter, primarily due to a 4% lower volume of loans in Argentine Pesos and 5% in US dollars, and a 6% decrease of government securities in Argentine Pesos, partially offset by a 52% higher volume of government securities in US dollars. In the same period, its yield decreased 260 basis points, reaching 28.9%, 36.8% in the peso portfolio, and 7.4% in the US dollar portfolio. Interest-earning liabilities decreased 5% from December 2025, amounting to ARS 23 trillion, mainly due to a 38% lower volume of other deposits in pesos and 9% in saving accounts in US dollars, partially offset by a 9% higher volume of time deposits in pesos.
During this period, its cost decreased 260 basis points to 11.7%. Net interest income decreased 7% when compared to the prior quarter, with interest income declined 13%, mainly driven by a 15% lower interest income from loans and other financing, while credit card income fell 28% due to seasonal lower average volumes and income from promissory notes decreased 19%, reflecting both lower volumes and a reduced interest rate during the quarter. In addition, income from government securities declined 8%, mainly due to lower volumes and yields in the early months of the quarter. Interest expenses declined 22% quarter-on-quarter, mainly driven by lower deposit-related costs amid reduced interest rate and average volumes. Expenses on time deposits fell 13%, while costs associated with other deposits declined 47%.
Interest on repurchase agreements decreased due to lower average volumes, and interest expenses on negotiable obligations fell following the maturity of a corporate bond in February. Net fee income declined 6% quarter-on-quarter, mainly reflecting the seasonality typical of the first quarter, which usually records lower transaction levels than the fourth quarter. Fee income decreased 5%, primarily due to a 4% decline in credit card fees following the seasonal spending streak of the prior quarter. Collection-related fees also fell, with collections fees down 13% amid lower transaction volumes, including a 10% decrease in utility bill collection services. Net income from financial instruments increased sharply quarter-on-quarter, partially driven by the sale of certain government securities. Results from government securities measured at fair value improved sequentially.
These effects were partially offset by weaker performance in private sector securities, reflecting lower returns during the quarter, and by a decline in results from derivative financial instruments, mainly associated with forward transactions. Results from quotation differences of foreign currency increased 10% quarter-on-quarter. This performance was supported by overall valuation effects, partially offset by lower income from foreign currency trading, reflecting reduced transactional activity following the unusually high retail volumes recorded in the previous quarter. Provision for loan losses declined 25% quarter-on-quarter, driven by a significant improvement in early delinquency indicators in the individual segment, which fell 49% compared to the previous quarter. As a result, portfolio quality closed the quarter with NPLs at 7.7%, while credit risk stood at 9.5%.
Personnel expenses declined 8% quarter-on-quarter, mainly reflecting a reduction in average headcount. Administrative expenses also decreased sequentially, falling 18% compared to the previous quarter, driven by operating efficiencies and synergies achieved through the integration with Galicia Más. Other operating expenses declined 21% quarter-on-quarter, driven by 74% lower other expenses, 12% lower turnover tax expenses, 73% lower charges for other provisions, and a 30% decrease in other financial results. The quarter included an income tax recovery, mainly reflecting the recognition of the tax credit associated with the filing of the fiscal year 2025 tax return, driven by the impact of inflation adjustment. Other comprehensive income declined 86% quarter-on-quarter, reflecting the comparison with the prior period that recorded strong market valuation of government securities, as well as the sale of part of the portfolio during the quarter.
The bank's financing to the private sector reached nearly ARS 23 trillion at the end of the quarter, down 4% in the last quarter, with Argentine peso financing decreasing 6% and US dollar-denominated financing up 1%, equivalent to a 21% growth when measured in that currency. Deposits reached ARS 24 trillion, 15% lower than the quarter before, due to a 12% decrease in deposits in Argentine pesos and an 18% decline in US dollar-denominated deposits, primarily due to restatement effects, as when measured in original currency, the decrease was 6%.
The bank's estimated market share of loans to the private sector was 14.4%, 75 basis points lower than at the end of the previous quarter, and the market share of deposits from the private sector was 13.9%, 274 basis points lower than in the fourth quarter of 2025. The bank's liquid assets represented 95% of transactional deposits and 56.5% of total deposits, similar levels of the previous quarter. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 7.7%, recording an 80 basis points deterioration as compared to the 6.9% of the fourth quarter of 2025, despite the improvement in early delinquency indicators in the retail segment.
At the same time, the coverage with allowances reached 91.4%, down from the 97.4% recorded in the prior quarter. As of the end of March, the bank's total regulatory capital ratio reached 25.5%, increasing 30 basis points from the end of the prior quarter. In summary, during the first quarter, financial margin partially recovered, efficiency improved, and the cost of risk declined. However, loan demand did not rebound, and asset quality and the monetary loss related to inflation had a significant impact on profitability. Nonetheless, Grupo Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect a sequential improvement in profitability and asset quality during 2026.
Now, Gonzalo Fernández Covaro , CFO of Grupo Galicia, will make some additional remarks, and I would like to mention that Hernán García, the CFO of Naranja X, is also here with us and will be available to answer specific questions. Thank you.
Thank you, Pablo. Good morning, everyone. Well, as you know, the quarter started a bit challenging with interest rate volatility, policy tightening, and high inflation. Rates, you know, went down in March and continue being stable so far. Looking ahead, we believe Argentina will continue with this phase of stability, a more predictable policy framework, and a real potential for credit growth. As normalization continues, as you know, the financial system will play a key role in the development of the country. Talking about the specific quarter about volume, the year started with low loan growth, due to low demand in the commercial credit side, mainly in Argentine pesos. It was better in US dollars, pesos really very soft demand. A stricter origination policy on the consumer side that we implemented.
We believe that commercial lending will pick up starting the second quarter. In fact, we have already seen some movement in this area in US dollars, but also started to see some demand in Argentine Pesos. We believe this will continue. Of course, as economy improves, consumer lending will also start to grow again as we expected. Projection for loan growth for the year, we are now at between 20% and 25%. We were expecting a 25% growth at the beginning of the year. Now we're seeing it a bit lower than that. In the case of deposits, we are now seeing an evolution of an increase between 15% and 20%. We were talking about 20% before at the beginning of the year.
As we said in prior calls, cost of risk already had its peak in the fourth quarter of 2025. We have started to see the credit losses charges to decrease, as you can see in the first quarter P&L. We expect that to continue quarter after quarter. NPL should have had the peak in the bank in the first quarter, I would say. Stability with reduction in the second, then continue to go down. On the cost side, we are capturing the benefit on the restructuring made last year after HSBC acquisition. We expect to end the year with an 11% cost reduction year-over-year. As you know, we made a big restructuring in headcounts and also in branches.
Talking about branches, we are already at the number of branches that we had before the HSBC acquisition. We maintain our ROE guidance for 2026 in the low double digits range. I would say 10%, 11%, between 10% and 11%. We expect to go from low to high during the year. It's true that we started a bit lower than expected in the first quarter, but mainly due to revenues. As you can see, the cost of risk and costs are turning on or better than expected. Revenues are a bit behind, mainly due to lower asset growth or loan growth and higher inflation that, as you know, has a big impact in bank's P&L.
We expect that now with loans increasing as we expected and inflation going down, we can catch up during the year to maintain the guidance. To be more specific, in the first quarter, January, February were bad months in terms of results, but March was a very good month. We are seeing April also good, so we expect that from now on, you know, months' results to come good and be able to catch up going forward. In fact, we expect like a ladder, you know, quarter after quarter to improve net income for the group. That's what I have. Now we are open to questions.
We're going to start the question and answer session for investors and analysts. If you wish to ask a question, please click on Raise Hand. If your question has already been answered, you can leave the queue by clicking on Put Hand Down. Our first question comes from Daniel Vaz with Safra.
Hi, everyone. Congrats on the results, and thanks for the opportunity of asking questions. I would like to double-click on the loan growth and ROE trajectory that Pablo just mentioned. I guess you are slightly revising it downwards on loans as market inflation expectations have materially repriced, right, since the last conference call. Your ROE trajectory are kind of stable at the low double-digit levels. Well, I mean, let me try to look into your March and April months that you mentioned it was good months. How are you connecting this March and April to the inflation going forward, right? We have a print today of the CPI.
Maybe it would be good to hear your expectations on that print and if the inflation couldn't hurt again, your NPLs and ROE trajectories take longer than you are foreseeing right now? Thank you.
I mean, expectations for CPI for the year is between 28% and 29%. From today, I mean, the consensus is talking between 2.5% - 2.8% inflation for the month. When I said that the inflation also hurt, it was more talking about the inflation accounting than the NPLs. I would say the NPLs is more how the salaries now catch up with inflation. With the tightening of our origination policies , I wouldn't think that two, three, 400 basis points difference in the year inflation will make an effect in the NPL. They can make in our revenues, in the inflation accounting.
In fact, we have a balance sheet covered, you know, against inflation. We have, you know, inflation-linked bonds, and we have also inflation-linked loans, like mortgages, for example, that cover the whole liquid position of the bank. The point that this has a lag. The inflation-linked bonds reprice after two months. In the first quarter, we have, you know, high inflation unexpected, but the inflation-linked bonds didn't catch that effect because they were still two months lag. Now in April, we are capturing February inflation, which was high, and in May, we will capture March inflation, which was higher. That is, that will help us going forward. That referring to how the inflation hurt us in the first quarter.
That gap or delay between the inflation-linked bonds and what you need to book in the P&L as a loss on inflation accounting. Talking about the rest of the year with the inflation that we are expecting, this 28%-29%, we expect that it wouldn't hurt further because we see the trend of inflation going down month after month. We don't see really that generate additional hits in credit losses. I mean, just remember that credit losses are still at a high level. We are reducing them quarter after quarter, but they are still higher than the runway we expect and that we want to be.
That's something that is, you know, evolves sequentially and not as fast as we want. Yes, we'll see an improvement quarter after quarter. Again, what we are seeing more in March and April has to do with now that our assets are covered or are linked to inflation are producing that coverage because the delay is away and because we will start to see a increase in the lending side. Also, what we have been doing as we have not When we don't see this demand in commercial lending, what we are doing is also seeking opportunities in investing in longer-term government bonds that are having good yields.
You know, inflation-linked bonds and, you know, variable rate bonds that are the last issuances were at good spreads. That also, in the meantime, that will wait for the demand to catch up. We are also putting some accrual assets that are having good yields that not necessarily are loans.
Okay. Thank you for the answer.
Our next question comes from Tito Labarta with Goldman Sachs.
Hi, good morning. Thanks for the call and taking my question. My question is, I guess on the funding. You know, deposits are not growing, particularly in Argentine Pesos. Your loan to deposit ratio is above 100%. How do you see the outlook for funding, you know, particularly if loans, you know, kind of pick up from here and your ability to fund that growth? Thank you.
Thank you. I mean, talking about deposits that we have seen a reduction. First, we have almost half of their deposits in US dollars. In the US dollar side, you have the effect of the exchange rate that, you know, these numbers are presented in Argentine Pesos. The Argentine Peso strength over the quarter, you see a reduction that was not the case. In fact, it's much the reduction was much lower when you consider US dollars to US dollar. Point to point was only 6%, and if you see in average, it was a growth of 6% in US dollar deposits. What we also did in US dollars, for example, we started to improve the efficiency of the balance sheet.
As we didn't see demand, we started to, you know, re-reduce the paying for the institutional funding. In US dollars, it's mutual funds. You know that now you have mutual funds in US dollars. As we didn't need those US dollars, we reduced the rate, we reduced because of that part of the institutional funding in US dollar that we don't need. That we can recap, you know, increasing the rate again when we want, we prefer to go for the efficiency. In Argentine Peso was the same. The main reduction was in institutional funding, you know, mainly mutual funds funding that we as the demand was not there in the asset side, we decided to, you know, be more efficient and reducing that.
In terms of transactional deposits, we have in our market share is stable. Even though you see a reduction, it's mainly because of the market. It's a seasonality market in the first quarter went down. But funding, I mean, if we go and look at the funding, considering our scale, that we're number one bank, private bank in the market, and also that we have this institutional deposit that we can go and bring back, we believe that the availability of funding will be there in Argentine Pesos and in US dollars. This was kind of, you know, seasonal plus something that we created considering a better efficiency in the balance sheet management.
Okay, great. Thank you very much.
Our next question comes from Brian Flores with Citi.
Hi, team. Thank you for the opportunity. I have a follow-up and a question. The follow-up is just on the guidance, Gonzalo. I think you mentioned you now envision low, low double digit ROE. I think the message from last quarter was explicitly 10%-11%. Just wanted to check with you if this is marginally slightly higher. That just wanted to check that with you. My question is on capital. Because you're building capital, you have a very robust core equity tier one ratio. Just wanted to ask you, given maybe the limited credit demand that you're seeing, if at some point we could see you shifting to perhaps a more aggressive stance on payouts or M&A. I know Pablo mentioned you have a slightly lower market share.
Just wanted to check with you if at some point it makes sense to you to defend it, no? I think that's it. Thank you.
Thank you, Brian. I mean, guidance is the same. I would say low double digits between 10% and 11%. It's the same as before. Talking about capital. Well, yeah, capital is high, but as you see, I mean, we haven't seen the demand in the first quarter, but really we believe that this should change. In the commercial areas at the beginning in the wholesale lending, we started to see a lot of, for example, acquisition finance. As you know, there are some privatizations going around in Argentina and some local companies changing hands. We are in some of those deals and seeing customers come and ask for potential transactions.
There start to be, you know, demand on the commercial lending, which is the bigger tickets, and it's the tickets that will make our balance sheet grow faster. Mortgage at some point should come back, you know, at some point, some kind of securitization program should be built. I think the government should play a role there. We believe that that should happen. That also another source of credit growth that will come. We believe that we believe in the credit growth story for Argentina, so we need to have capital for that.
Considering acquisitions, I think you mentioned, I mean, we are always open to, you know, to analyze the market and that's something that we are not closed to. Of course, needs to be something that makes sense for us and for our strategy. For the time being, we are concentrating in the organic growth. We believe that there is a lot of room to grow. We are going to defend our market share. When you see in deposit some kind of reduction in market share, it comes mainly from the institutional funding because deposits, we are taking deposits as a whole. We are not losing market share in the transactional deposits. It's the one that we want to defend.
We are going to defend market share. It's, for us, it's important to be large, to have the scale and the economies of scale. We are going to do that organically. If at some point something comes that is good and fits for our strategy, of course, we'll analyze it also.
No, super clear. I know you have the management from Naranja X here. Just wondering if we should envision Naranja X coming back to profits during 2026.
Hello. Thank you. Yes, of course. I mean, in fact, if you take a look of the numbers of the first quarter of this year, even though we posted a net loss of almost ARS 19 billion , sorry. This loss represented already a 60% recovery from the previous quarter loss. That was almost around ARS 50 billion . This recovery was mainly driven by a decline in loan provisions and in line with the downward trend that we already seen in delinquency rates. That was in fact observed since September last year. For the year as a whole, we expect the ROE to recover and maybe reaching a high single-digit levels on a full year basis.
No, super clear. Thank you.
You're welcome.
The next question comes from Ernesto Gabilondo with Bank of America.
Thank you. Hi, good morning, Gonzalo, Hernán, Pablo, and the team, and thanks for the opportunity to ask questions. My first question will be on your macro expectations for the year. You already mentioned inflation and [28%], [29%]. What should we expect in terms of GDP growth, interest rates and FX? Also, how do you see the indebtedness of families, especially after the deterioration in asset quality across the banks and fintechs? My second question will be a follow-up in asset quality. You mentioned NPL, which it's peaking this first quarter, you're expecting to be relatively stable in the second quarter and then trending down in the second half. We're looking to the reserve coverage ratio. It's below the 100%.
Can you provide us any color, and how should we think about the evolution of the reserve coverage ratio? Also linked to the first question, again, based on expected losses and maybe fintechs are showing higher deterioration, how you see this reserve coverage ratio. I didn't catch up, the cost of risk for the year, if you can provide us, also what will be the level for the year. My last question is if you can give us any expectations or any color on how you're seeing NIMs this year. Thank you. Yeah, sure, Ernesto. Well, first, I think it was about the macro, your question, the macroeconomics of the country. I mean, growth, we see more or less 3% the GDP growth for the year. Interest rates ending the year with a tomorrow of 22%. I mean, we believe that it's in line with what we are having today. We see interest rates a bit stable during the rest of the year. Talking about margins also, we see margins in the year around 16% for the bank, which it's similar to what we have in the first quarter. We see margins really stable this year. I think your questions comes from credit losses, family indebtedness.
Effects too.
Effects. Well, the effects for the year, it's like ARS 1,600, ARS 1,590, ARS 1,600 per loan. Talking about family indebtedness, I mean, we still see, for example, we cut, you know, our scorecard and strict on our credit policies. That's why NPLs are improving or cost of risk improving. We still do some champion challengers, you know, lending to lower levels. We still see that those segments are bad. They are not improving. We didn't see any improvements in the families' income, let's say. The improvements that we have been seeing is because we are lending to better quality or higher segments, I would say.
That's how we are now, and we continue this way until we see that these, you know, tests that we are doing change, but so far we haven't seen them. Of course, that the expectations is that during the year, you know, economy inflation, as inflation continues to go down and economy grows, you know, this can also touch more families and the microeconomy also improves. We got that happening, then that situation that I just described should change. We could, you know, start lending to different segments. So far, we are not seeing that. I mean, talking about reserve coverage.
I mean, reserve coverage is, you know, in general, when you, when you grow a portfolio, I mean, you build in for the normal or the portfolio that is not past due is of course building this cushion for creating a higher reserve coverage that covers 100% of the non-performing loans. Now, what's happening is that, you know, we saw a portfolio worsening, as you have been seeing, and we started to use those reserves. That was combined with a quarter with low volume, low origination. It's kind of a math situation, no?
As you have lower volumes, lower new lending, you are not building new reserves that originated with good credits that are, you know, building cushions for the non-performing. That's a reality that will be changed during the year with volumes growing again and also with the quality of our portfolios that continue to improve, as we saw the improvement in the first quarter, and we will continue to see in the second and third. We expect reserve coverage during the year maybe to come back to 95%, 96% improving. Then on the 2027 and 2028, of course, continue to improve as we start seeing the level of NPLs and cost of risk, all that we want.
During the year, we need, you know, volumes, the increase in volume to come back to normalize that situation because this is generating. The fact of is true, you know. Higher, worse quality of the portfolio than a normal situation, plus lower new volume that, you know, subsidize and, and builds new reserves. The Well, then cost of risk for the year, we are expecting it at 8%. We end as you know, last quarter was like around 12%, 12.5%. We are at 9.5% in the first quarter. We expect the full year to end at 8%. I don't know if I have.
No.
answered the question, but I may stop.
Yeah. No, this is very helpful. Thank you very much. Just a follow-up in terms of this reserve coverage ratio. We have seen NPLs peak probably for the banks in the first quarter. Any color on the fintechs, because I believe fintechs, especially in credit cards, are showing much, much higher NPL. I just want to check with you if you have to build provisions as maybe in the credit bureau, all of the fintechs are showing this higher NPL, and then you as an industry have to create more provisions. You've got to double-check on how do you provision these potential deterioration on the fintechs.
No, no. I mean, we, as you know, in general, when you have the obligation to change your grade or your rating is when you see the bank's debtors, then you cannot have more than two notches differences with other banks. That's a Central Bank policy. With fintechs, of course, we monitor, you know, credit bureau, et cetera, but credit bureau is more for origination than from changing the situation of your customers or the qualification of your customers. Yes, we use it for to lend new loans, but not to change what provides for the lending. Yes, we use the database with debtors of the financial system, which is something that we all banks submit to Central Bank.
If the other banks have the same customer in a worse situation, you also need to adjust, and we use that. With fintechs, I would say that it's more considered for the origination of new lending rather than for providing more, because what you do in general, the customer with us, they start with us, with us and other banks. If the customer is doing bad, in general, he will be doing bad with everyone, so we'll already be catching because he's doing bad with us and doing bad with other banks. It's not common that we have a customer that is doing bad with a fintech but doing okay with the banks. We haven't seen that, and we really don't see that impacting the provisioning. Yes, the origination of new lending to those people.
Perfect. No, super helpful. Just a last question. I don't know if you can provide us any color about the potential MSCI reclassification of Argentina. When do you expect this to happen?
Well, I mean, it's difficult to answer that question. I mean, it's something that we are all expecting and would like to happen soon. I mean, it has to do also with the, you know, FX restrictions that needs to be waived. It's not that clear when that will happen. I don't see that that will happen in the near future. Next year, we have elections, so, that is also something that may work against, you know, the taking away the FX restrictions. We don't know. I think that that's a key milestone that the country needs to do before this happening. It's difficult to believe that this will happen in the very, very soon.
Okay. No, thank you very much, Gonzalo.
Thank you. Have a nice one.
The next question comes from Yuri Fernandes with JP Morgan.
Hey, guys. Hi, good morning. Hi, Gonzalo, Pablo, Hernán, everybody. I have one regarding regulation. We saw some flexibilization this year already on the reserve requirements. I guess March and April, there was this flexibilization. Anything else on that? I know inflation is still a little bit under pressure in Argentina, not sure if the reserve requirements will be much more flexibilized. What have you heard, any other regulation asymmetries and pressures that were headwinds for banks in the past quarters that could be solved this year? Just checking on this because I think that's important for margins for you. Then just to follow up on asset quality, I like the quote on the almost 50% drop on early delinquents.
Just trying to understand how should this reflect on the NPLs, right? Assuming this is really the peak, and I think the new information indications for both Galicia and Tarjeta, they reinforce this message. How quickly early delinquent indicators should be reflected in lower NPL? I guess with lower NPLs, we should also see, you know, your coverage moving up on a base effect, right? If you can explain just the path we should see for early delinquents and NPLs, I think that's also important for us. Thank you.
Thank you, Yuri. Reserve requirements, I would say that the changes that we saw were didn't make a big change because they were mainly on the remunerated reserve requirements. You remember that you have reserve requirements that go at 0% yield in Central Bank, and some of them that you can integrate with government bonds, which has a yield. The reductions were mainly in the ones that you could integrate with government bonds. From P&L perspective, didn't change much. From liquidity or lending capabilities also, it doesn't make a lot of changes because we banks have a lot of lending capabilities still without need to require to change in reserve requirements.
Going forward, well, we always talk about that. Remember the government is also very keen in reducing inflation, this may go against that. We don't have a sense, something that we always talk with Central Bank, but so far, no news and no any anticipation of when or if this will happen this year. Any other change, we don't see any other change happening. We always have a list of things that we talk with Central Bank, like for example, remunerating dollar balances in Central Bank or letting banks to invest in, you know, in treasury bills or yielding dollar assets. That's something that we don't have, and it's a lot of dollars that are not very yielding nothing for banks. For example, this is one point. We have many that we also continue to discuss, but no sight of when or if they will make any change. Going back to NPLs, yeah, I mean, early indicators of early roll rates
I would say that we may see real improvements in NPLs more within six months. In the second half, I would say between third fourth quarter to start seeing reductions in NPLs. Cost of risk, as I said before, we expect this to happen quarter after quarter in the rest of the year. NPLs to see improvements that you can consider some significant improvement, we expect end of the year, NPLs at 6%, around 6%. That's more or less the, from 7.7% that we are now. That's the path we are seeing, you know, of how the early indicators or the early good performance should translate in better NPLs.
No, super clear. Thank you, guys.
Thank you.
The next question comes from Matías Cattaruzzi with AdCap.
Hi, everyone. How are you? I have a few questions. First, the total deposits fell 16%. It was, you lost like 2.5 points of market share. You said that this was because of an aggressive, expensive funding reduction. How will we see throughout the year the bridge towards the 15%-20% real growth in the year, which, with a really negative first quarter. Do you expect going forward loans to reach 30% growth in the upcoming quarters? Is it gonna be in the second half of 2026? Current rates in second quarter doesn't look that good, right? Or is it the seasonal impact of the first quarter?
I got one more question about the mortgage debt regulator, sorry, background, but if you wanna answer that one first.
Talking about deposits. Yeah, I mean, deposits, remember that I also talk about US dollars, no? You see that the market share is Argentine Pesos and US dollars. We had, we increased a lot of market share in US dollars after the tax amnesty, the last tax amnesty, that was US dollars that doesn't have any application. As you know, you can only lend to exporters and which very low yields. A lot of comes from that, from paying less to mutual funds. That was nothing that was. It's not easy, the combination of both. In Argentine Pesos was mainly, I mean, funding from mutual funds, rather than the transactional deposits.
When we see grades going up again, that is something that, as I said before, we started to see now in the second quarter in the commercial area. We will recap those funds going to the market and paying back again in Argentine Pesos but also in US dollars if we need. I mean, talking about a credit portfolio. That's how we plan to grow again, you know. Of course, we expect the deposits and we expect market also. I mean, market in the first quarter always has a seasonal reduction in transactional deposits. We expect that to go up first by seasonality and then our, you know, our actions.
Seasonality should come back the loss that we saw, that the market saw in the first quarter in current accounts and savings accounts, as we see every year coming from a peak of December, that is always some amount with a lot of money in the street. Credit, I mean, I said that we see between 20% and 25%. I mean, mainly in the commercial area. We have been, you know, in deals with big tickets in acquisition finance, privatizations, and there are many coming and talking to us about new things that are big tickets, so that also can increase lending faster than in the SMEs or in the individuals.
Some of them are in US dollars, as you know, and some of them we are starting to see also Argentine Peso transactions. That, that plus, you know, the rates to stabilize in the lower area, for commercial, not for individuals. We expect, you know, and also economy continue to evolve. We expect this to help on the great growth. Great growth we already start to see in the second quarter, but of course it will be more consolidative in the third, we would say. But in the second, we already start to see tickets and things that we are not seeing in the first quarter.
Of course, that's something that is not sudden, but already will be by steps. In the second quarter is better than the first, and we expect better than the second.
Okay, great. In the loan portfolio mix, it currently, US dollar loans were 35%, right, of loans. How do you expect this mix to evolve throughout 2026 and in the future?
I mean, for 2026, we may go maybe 60/40. I mean, dollar loans could grow a bit. In the future, I mean, if we continue with the stabilization of inflation, and in 2028 we had a lower inflation and rates goes with that shouldn't change much further than that because, you know, companies should start using the local currency for funding. Of course, next year is an election year, we need to see, you know, how the things are going to happen or to be next year. In general, we see for the future with stabilization, you know, still we see Argentine peso financing being more important than US dollar financing.
We are in the middle of a transition to rate reduction. That's why companies continue to prefer US dollar because of pricing matter. As rates in Argentine peso continue to go down, that should Argentine peso should continue to be the higher weight in our portfolio.
How do you see the mortgage debt regulatory background going forward? Is there any indication of success given the needed liquidity for the market to grow more or any other participant?
No, I mean, so far. It's discussions that we continue to have with the banking associations and Government, that the need of a securitization program that unmet funds could be a source. They announced a lot of economies also, you know, with that opinion. It's something that so far is not in the agenda, and we don't have a date or something that when it could happen. We hope and expect that at some point it should because it will help the financial system. More than that, the economy, no? They provide a lot of support for the economy, for price and et cetera.
So far, no news, even though we continue talking and putting that on the table every time that we can.
Going forward, we won't be seeing a significant growth in the mortgage debt mix.
I mean, this year, I would.
In the next months.
I wouldn't expect that this year, unless, you know, these changes, and we have a securitization program in sight. I would say that for the rest of the year, it's hard to see it.
Okay. From US dollar loans in the mix, can you walk us through which are the main components? Is it all [Non-English content] or have you seen any other growing?
There are things that I said is like acquisition financing or privatizations that we are seeing now, as you can see that they are going out on different type of transaction that require US dollar, that has higher yields than the acquisition, the pre-import or export. We are talking about higher yielding than the ones that we are used to see with the exporters.
Okay. Thank you so much.
Thank you.
The next question comes from Carlos Gomez-Lopez with HSBC.
Hello, Pablo, Gonzalo. Thank you for taking my question. When I look at the results, I get the impression that you took the opportunity to make some gains in the bond portfolio because this quarter was especially weak operationally. That's normal. That's normal management. Is that the correct impression, and would you be able to quantify how much, you know, you gained by selling government securities versus other quarters? Second, I would like to ask about the cost reduction. As you say, you have reduced some from what we saw in the inaudible] to 80% of the personnel of HSBC, the entire number of branches.
Is the level of expenses that we're seeing this quarter the permanent one, or should we see further reduction or a rebound through the rest of the year in real terms? Thank you.
When you're talking about, yes, we rotate our portfolio.
Like we have been doing some extension of duration. It's not that we sell them, and we give up the accrual.
Rather than we, you know, change for longer duration with good yields. We keep a good accrual or improving sometimes accrual that we have been having and because of longer durations, of course. Get the results in the quarter.
In the quarter, I would say that we have like pre-tax, like ARS 30 billion more or less, which is like ARS 20 billion after tax, more or less, something like that.
That would be the gain or the amount.
Gain. The gain, sorry. The gain. Yes.
ARS 30 billion. Okay. All right.
Pre-tax, no? The other question was, cost.
Yes. Cost, yeah.
I mean, cost, yes. I would say that, no. I would say that the level of expense that we have is the run rate. We are still doing some restructuring, not because of HSBC, but because of normal. We may count some things here and there on severances. I wouldn't expect something big, but maybe you may have a peak on one month or something because of that. We didn't do a lot in the first quarter. We may do something in the second quarter, but nothing significant. Maybe it's flat or something a bit higher. With those one-off, that shouldn't be repeated. In general, our cost should continue to go down because the run rate, because we continue to make efficiencies.
You think the costs, I mean, in real terms, should actually decline from here. You don't, I mean, that also kind of like probably.
I would say that, compared with the prior year, the run rate of this year, I would say that could be similar to the first quarter, with some kinds of reduction, but nothing significant because it's something that we may be doing some efficiencies but also investing in technology, in other things we wanna do.
I would expect more something stable during the year, which is much better than prior year, no?
Very good. If I can follow up on the capital you've answered about this. After loan growth recovers, what is the level of capital that you would like to operate with on a sustainable basis? Certainly not the 25% CET1 that you have today, but.
You said, when we reach maturity of the market, is that what the, I didn't, I couldn't get the question?
Yeah. When we go back to a normal growth rate in the market, whatever that is and whenever that is, what level of capital do you?
I would say that's 15%, around 15%.
Around 15%. Okay. Thank you so much.
The next question comes from Alonso Aramburu with BTG Pactual.
Hi. Good morning. Thank you. Thank you for the call. Just wanted to follow up on the, on the loan growth comment, and expectations for this year. If, if you look at Naranja, it's now in negative territory the last 12 months. Clearly, you know, more exposed to consumers. Maybe you can comment on what are the expectations for Naranja, and how that can influence your, your loan growth at a, at a Grupo level, right? I think your 20%-25% expectation is more at Banco, not at the group level. When you consolidate it to, what are you expecting for the year? Thank you.
Hi, Alonso. Thank you for the question. In the case of Naranja, as you mentioned during the 1st quarter, we've seen a reduction in the portfolio, a reduction in the portfolio, mainly concentrated on the credit card portfolio because the loan, personal loan portfolio keep on growing. For the rest of the year, we are not expecting to regain aggressive rate of growth in the case of Tarjeta and the trade card portfolio. We are expecting a more stable, or I would say low single-digit growth for the rest of the year in the case of credit card portfolio, with a much more aggressive rate of growth in the personal portfolio.
In that case, we are expecting something like 30% increase as long as we have enough room to keep on growing there because we are targeting our best segments around our users.
You mentioned 30%, 30% in personal loans?
Yeah, 30% in the case of personal loan portfolio.
Okay. That means Just to clarify, your 20%-25% guidance for the year, is that for Grupo or for Banco?
No, that's Banco. Sorry. Yeah.
Banco. Okay. Consolidated Naranja consolidated would be less than that?
Yeah. Sorry. Naranja consolidated it's going to be like in the low single digits rate of growth.
Okay. Okay. Which means that Grupo is going to be maybe closer to 20%, not 25%, given the guidance.
Yeah.
Okay.
That's right. Yeah.
Yeah. Thank you.
The next question comes from Agustín Alberto Pacheco with.
Hi, can you hear me?
Yeah.
It's Agustín Pacheco from Banco Mariva. Thanks for taking my question. I wanted to ask about Fondos FIMA. Given that money market funds represent the majority of FIMA's assets under management, if inflation continues to decline and nominal rates move lower, these products could become less attractive for savers. How do you expect FIMA's assets under management and fee generation to evolve under that scenario? Are you planning to grow more aggressively in other segments such as fixed income, longer duration funds, dollar-denominated funds, or equity products to offset a potential slowdown in money market funds?
Yes. Thanks, A gustín . Yes. I mean, we know that in money markets should at some point start to lose, you know, appealing from customers because of low inflation. We are working. The beauty of that is that we could offer more sophisticated, you know, funds. So far with high inflation, it was more difficult because the demand was not there. We are really thinking about different funds in Argentine Pesos, in US dollars, more sophisticated to capture, you know, a new market with more stability and that will be more keen to invest in different funds. That would be the change of strategy. I think you mentioned it in your question. It's okay.
As the money market lose attractiveness, we will be switching to more sophisticated funds.
Got it. Thanks.
The question and answer session is over. We would like to hand the floor back to Pablo Firvida for the company's final remarks.
Okay. Thank you, everybody. Any additional question, we are always available. Have a good morning and afternoon. Thank you. Bye-bye.
Bye.
Grupo Financiero Galicia conference now closed. We thank you for your participation and wish you a nice day.