Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia second 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 that all attendees will only be listening to the conference during the presentation, and then we will 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. Good morning, and thank you for joining this conference call. Before reviewing our operating performance, I would like to briefly address the macroeconomic backdrop that shaped the performance of the financial system during the quarter and provide the context for our business trends. According to the Monthly Indicator for Economic Activity, IMAE, the Argentine economy expanded 2.7% year-over-year in June and recovered 0.8% month-over-month on a seasonally adjusted basis. Despite this month's improvement, activity remained 1.1% below December 2025 levels, mainly reflecting the declines recorded in April and May. In the second quarter of 2026, the primary surplus stood at 0.4% of GDP, in line with the level recorded in the second quarter of 2025. On a year-to-date basis, the primary surplus reached 0.8% of GDP.
During the first half of the year, total revenues declined 5.7% year-over-year in real terms, while primary spending decreased 2.8% in real terms. The National Consumer Price Index accumulated a 33.5% increase on a year-over-year basis and a 16% increase during the first months of 2026. During the quarter, monthly inflation decelerated from 3.4% in March to 1.9% in June. The monetary base expanded by ARS 4.1 trillion during the second quarter and ARS 8.5 trillion from the end of June 2025, representing a 23% year-over-year growth. In June 2026, the exchange rate averaged ARS 1,450 per dollar, implying an 18.5% year-over-year depreciation. The average rate on 30-day peso-denominated private sector time deposits above ARS 1 billion, TAMAR, stood at 22.7%, 10.9 percentage points below the June 2025 average.
Turning now to the financial system, private sector peso-denominated deposits averaged ARS 117.4 trillion in June, increasing 8.4% during the quarter and 31.8% over the last 12 months. Time deposits grew 8.2% during the quarter and 45.5% year-over-year. While peso-denominated transactional deposits declined 8.4% during the quarter, but increased 17.1% year-over-year. Private sector dollar-denominated deposits amounted to $39.4 billion, increasing 1.9% during the quarter and 29.6% over the last 12 months. Peso-denominated loans to private sector averaged ARS 98.7 trillion in June, increasing 6.8% quarter-over-quarter and 36.4% year-over-year. Private sector dollar-denominated loans amounted to $23.5 billion, recording a 14.6% quarterly growth and a 48.8% annual increase. Overall, the second quarter was characterized by a more stable macroeconomic environment, improving real activity indicators, and continued expansion across key financial system aggregates.
Moving on to Grupo Financiero Galicia, net income for the second quarter amounted to ARS 258 billion, 12% higher than in the previous year, which represented a 2.1% return on average assets and an 11.3% return on average shareholders' equity. This result was mainly due to profits from Banco Galicia for ARS 158 billion, from Fondos Fima for ARS 38 billion, from Naranja X for ARS 36 billion, from Galicia Seguros for ARS 23 billion, and from Galicia Securities for ARS 8 billion.
Banco Galicia net income improved by 211% sequentially and 21% compared to the second quarter of 2025. Supported by lower funding costs due to the consolidation of lower interest rates, stronger performance from government securities and derivatives, and a modest expansion in Net Interest Margin. Credit quality trends also improved, reducing Provision for Loan Losses, while ongoing integration synergies from Galicia Más, ex HSBC, drove further efficiency gains.
Results additionally benefited from lower inflation-driven monetary losses in a decelerating inflation environment. Average interest earning assets reached ARS 30 trillion, 6% higher than in the previous quarter, primarily driven by a 27% higher volume of government securities in pesos and a 37% higher volume of government securities in dollars, together with a 9% growth of dollar-denominated loans, while peso-denominated loans decreased 7%, in line with a more selective origination policy and lower demand. In the same period, its yield decreased 190 basis points, reaching 21.1%, 34.8% in peso portfolio and 7.4% in the dollar portfolio, due to lower yields on both local and foreign currency-denominated loans. Interest-bearing liabilities decreased 3% from March 2026, amounting to ARS 24 trillion, mainly due to a 10% lower volume of liabilities in dollars, partially offset by an 8% increase in peso-denominated term deposits.
During this period, its cost decreased 159 basis points to 10.1%, reflecting the broad-based decline in interest rates that began toward the end of the first quarter of 2026. Net Interest Income decreased 3% when compared to the prior quarter. Interest income declined 8%, mainly driven by a 17% lower interest income from loans and other financing due to lower volumes and the decline in interest rates during the quarter. This was partially offset by a 20% higher income from government securities, primarily driven by a higher average portfolio and stronger returns from CPI-linked securities. Interest expenses were 16% lower, mainly related to deposits. Net Fee Income increased by 2% quarter-on-quarter, mainly due to a 14% decrease of fee expenses.
Net Income from Financial Instruments was 275% higher than in the previous quarter, mainly due to lower losses from derivative financial instruments, which decreased 85%, and 84% rise in results from the re-recognition of assets, driven by sales of government securities classified at fair value through OCI, 50% higher gains from government securities measured at fair value, and a recovery in the results from private sector securities. Results from quotation difference of foreign currency decreased 13% quarter-on-quarter. This performance was explained by a lower level of transaction activity, given that the previous quarter had registered a higher volume of operations by retail customers. Provision for Loan Losses declined 8% quarter-on-quarter, driven by the decrease in loans becoming Stage 3 and the associated deterioration of that portfolio, reflecting signs of improvement in the delinquency indicators observed during the quarter.
Personnel Expenses went up 12% sequentially due to an increase in the provisions for variable payments aligned with improvement in the financial performance, while administrative expenses were flat quarter-on-quarter. Other operating expenses declined 15% quarter-on-quarter, driven by a 14% lower turnover tax, 13% lower other fee-related expenses, and a 21% decrease in other financial results. The bank's financing to the private sector reached nearly ARS 25 trillion at the end of the quarter, up 4% in the last quarter, with peso financing decreasing 4% and dollar-denominated financing up 19%. Deposits reached ARS 27 trillion, 7% higher than the quarter before, due to a 7% growth of deposits in pesos and a 6% increase in dollar-denominated deposits.
The bank's estimated market share of loans to private sector was 15.1%, 69 basis points higher than at the end of the previous quarter, and the market share of deposits from the private sector was 14.3%, 42 basis points higher than in the first quarter of 2026. The bank's liquid assets represented 93.1% of transactional deposits and 55.2% of total deposits, compared to 95% and 56.6%, respectively, as of the previous quarter. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 8.3%, recording a 60 basis points deterioration as compared to the 7.7% of the first quarter of 2026. The coverage with allowances reached 92.8%, up from 91.4% recorded in the prior quarter.
As of the end of June, the bank's total regulatory capital ratio reached 26%, while the Tier 1 ratio was 25.9%, both increasing 48 basis points from the end of the prior quarter. In summary, during the second quarter, profitability improved sequentially, supported by a stronger contribution from financial instruments, lower funding costs, reduced loan loss provisions, and continued efficiency gains from the integration. Business volumes remain resilient, with growth in total financing and deposits, particularly in dollar-denominated loans, where we continue to gain market share in both loans and deposits. At the same time, the non-performing loan ratio increased during the quarter, although coverage levels improved and provisions declined, reflecting early signs of stabilization. Overall, Grupo Financiero Galicia maintains strong liquidity and solvency metrics and will remain focused on disciplined growth, preserving capital strength and further improving asset quality and profitability over the coming quarters.
Now, Gonzalo Fernández Covaro will make some additional remarks.
Thank you, Pablo. Talking about our financial performance, as Pablo said, we saw a better quarter as interest rates stabilized at lower levels, with margins slightly increasing too, and also better returns from our loan portfolio. Our cost of risk continued going down as respected and expenses under control, enjoying the results of last year's restructuring. Talking about volume, loan growth continued to be slow due to low demand in the commercial credit side in ARS, better in dollars, and stricter origination policies on the consumer side. We expect some recovery in the lending volume in the second half. Our projections for loan growth are now around 10%-15%, with more participation in dollars cycle companies as it has been happening in the second quarter. We see deposits growing around 10% for the year.
As we said in prior calls, cost of risk already had its peak on the fourth quarter, and we started to see credit losses charges to decrease in the first and the second quarter. Stabilization and reduction of NPLs will take one more quarter than expected. We are seeing now the peak in the second quarter, so in June now, with a stabilization and reduction going forward. In the bank, we expect a slight decrease of NPLs ratio in the third quarter and reaching around 6.3% at the end of this year on the NPL ratio. This year's cost of risk for the bank around 8.3% for the full year 2026. That's our expectation for the rest of the year. We are now at 9.3.
We expect that credit losses charges will continue going down in the second half, as it has been happening in the first two quarters. On the cost side, we are capturing the benefits of the restructuring made last year, as I said, after the HSBC acquisition and expect to end the year 11% lower cost than prior year. We already have the same amount of headcount than the one we had before the acquisition of HSBC. Lastly, regarding returns, we see our ROE around 10% for the year. We trust that the lending volume will pick up to achieve this goal. Of course, while the lending growth is low, we also invest in other earning assets like government bonds at good yields. The goal here is to grow earning assets to be able to continue to improve earnings and results.
With that, I think we are open for questions.
We are going to start the question and answer session for investors and analysts. If you wish to ask a question, please press the button raise hand. If your question has already been answered, you can leave the queue by clicking put hand down. Please hold while we pull for questions. Our first question comes from Daniel Vaz, from Safra.
Hi, everyone. Thanks for the opportunity of making questions. Gonzalo and Pablo, maybe my first question will be on your macro expectations for the year. I guess last quarter you mentioned inflation between 28% and 29%. I would love to get your views on that at the margin as we are looking at August. It seems like inflation is a little bit better, but I would love to hear your thoughts. Secondly, I would like to touch base on your loan growth between 10% - 15%, as you mentioned right now, and your also appetites to government bond at good yields. Do you think your loan growth could be maybe picking up later as you have good government bonds at good yields right now for you to capture? Maybe your asset quality is not as good as you expect for the beginning of the year.
I guess my question is, maybe 2027, we still have a not-so-great loan growth, but good yields improving from treasury results. Maybe your P&L balance would be more inclined to that. Is it a good assumption? Thank you.
Thank you for the question. Well, first, something about economic projections for the year. We see inflation at 29, around 29% for the year. GDP growth around 2.6%. It's around the same numbers you were mentioning regarding inflation. Regarding our portfolio mix, I would say that it's both. We are concentrated in trying to grow loans because that's the business we want to grow because it's the one that is sustainable. We are very close to our customers, our mainly commercial customers, to see opportunities. We have seen some dollars/ opportunities that we capture, mainly in the oil and gas arena, and also there have been some privatizations of state-owned companies that we have been supporting some of the groups bidding for those, that also they require some financing. We are active there. Of course, it is slower than what we would like.
On the other hand, yes, we grew in government bonds. I would say that government bonds has a limit. In order to continue to improve results, we need to grow our balance sheet from the state we are now. We can still grow some. We have room to grow more government bonds, but the point is that we have internal limits, of course, for prudency. We need to grow lending also. Also to clarify, in the bond portfolio, we have two things. We can have the bond portfolio to buy longer-term bonds and put them to accrue. We can classify them as hold to collect and sell or hold to collect and leave them to accrue interest. But also we have the trading activity, as you know.
That will continue to happen, that we see opportunities to buy bonds and then sell them and buy longer terms. We will capture the difference. It will be both. The trading activity, of course, we are going to be very active as we have been in the second quarter to capture opportunities. As you know, Argentina will have some volatility between now and the elections because it's usual when elections come closer. We try to get advantage on that. We will continue to see opportunities to capture new bonds that have good yields and just have them accruing interest. But at the same time, we'll need to grow our lending portfolio because, as I said, we have internal limits for keeping our bond portfolio.
We need to do business with clients, with the private sector, and that's something that we will be focused on, and we are very focused on, and we'll continue to be focused on.
All right. Thank you.
The next question comes from Ernesto Gabilondo from Bank of America.
Thank you. Hi, good morning, Gonzalo, Pablo, and Etienne, and thanks for the opportunity to ask questions. My first question is one that I made to the other banks, and it was on the political and macro outlook. I think it was a couple of weeks ago, a few weeks ago, we started to see some surveys or kind of initial polls ahead of the presidential election next year. I just wanted to see your thoughts on what are you hearing in terms of the business sentiment, the consumer confidence, the family indebtedness, the financing of the region projects. Is it something that Galicia can actually participate or it will be more the next years? All of these things ahead of the election. My second question is on your ROE guidance. You didn't give a certain percent the first half. You mentioned a number.
I didn't get it. If you can also remind us what was the ROE now for the year, and how should we think about the evolution during the second half? Also, how do you see your medium-term ROE? When do you expect that to start recovering? When do you see long growth start recovering? As you said, you have reduced the guidance to 10%-15%. I am just wondering how you see the picture more for next year. Thank you.
Thank you, Ernesto. Talking about the future between now and the elections, we will see that Argentina always, when there is election, we may have some volatility. We are not seeing it yet. We see that Banco Central has a good and a stronger set of reserves that can help face any volatility issue or any higher demand on dollars than, for example, what happened with last midterm elections. We believe that that will help, that if there is any volatility, that is something that is controlled, that is something that won't generate big disruptions. I think that's good for what we are seeing. I think looking, of course, at this time is a bit too early. This can change every minute, so we are not really focusing on that.
As you know, we are here in Argentina for the long term, so we want to do business regardless the situation. Of course, with caution, when we see that delinquency is going up, we will change our recent policies, and we adapt to each of the moments. But so far, things are doing fine. GDP is growing. We are, as I said before, very close to our commercial customers, mainly in the oil and gas arena, trying to serve all the value chain and all the suppliers also of all the oil companies, and something that we are doing, and we are, of course, participating. The risky financing is very big tickets, so at some point, the local financial system will participate with a very small portion. Some of those financings are already satisfied with international insurances.
But of course, we are there for any local portion of the financing that is needed and also, as I said before, to serve the value chain of the bigger companies. But as I said, so far so good. We expect some volatility as always, but nothing really big because we see that Banco Central is better capitalized and with better reserve of the ones that cut in the last elections. We're talking about, you also mentioned indebtedness of the families. We've seen that that's improving, at least in our portfolio, that's improving, and we are seeing our roll rates improving. That's something that, of course, taking caution on where to lend. I think at least for financial system, we are leaving behind the worst. Talking about returns, ROE, what we are seeing the ROE for the year is 10%, around 10%.
I cannot measure the exact number, but I would say around 10%. We are 7 and something cumulative. Yeah, of course, we see that that will continue improving, I would say around 12%, try to end the year with something around 12%. That's the goal and that's what we are expecting, and that's what we are aiming to. For that, we need to continue growing our lending portfolio, of course, at a lower level than what we expected at the beginning of the year. But we are confident that mainly in the commercial side, we can get some traction from now on. Talking about medium-term ROE, of course, that's our, when we talk about next year, I think we are aiming to be at 15%.
I think it's too soon to give a guidance for next year, but that's our target and our aim for next year, and we will confirm a guidance in third quarter call that will be closer to year-end. That's at least what we are aiming and when we do our projections and when we try to shape our balance sheet towards that. Again, we confirm that later in the year. When we talk about medium term, well, medium term is always our aim is to be above 15%. We always say between 15% and 20%. We need to see when we are going to achieve that. As you know, we have talked in the past, we have the inflation accounting. That is something that is a burden for Argentinian banks.
As inflation continues to go down, I would say that in the last year that we have inflation accounting with the lower inflation, it will hurt us more than when we used to have high inflation because interest rate will continue to go down. With a lower inflation, having that drag in your P&L will be harder and also will be more comparable with other countries, but we're still having the inflation accounting. So when we are going to reach that, well, it's hard to say. Of course, that's for sure when inflation accounting is gone. We still need to see when that will happen. But our long-term ROE target is 15%-20%. Talking about next year, we are aiming at 15%. We'll confirm later in the year if that's something that we'll see, Christopher.
Perfect. Super helpful. Thank you very much, Gonzalo.
Thank you.
The next question comes from Tito Labarta from Goldman Sachs.
Hi, good morning, Gonzalo, Pablo. Thank you both for taking my question. My question is more on the deposit side of things. You did see a pickup in deposits in the quarter, even in ARS deposits. There was about a 22% jump on the savings deposits. Just to think about, how are you thinking about deposit growth going forward, both in ARS and in foreign currency, and particularly in terms of liquidity, if loan growth does improve into next year, your ability to fund that, and do you think this pickup we saw in the ARS deposits in particular, is that sustainable with anything particular in the quarter that jump in the savings deposits? How you see that going forward. Thank you.
Thank you. Deposits have improved, deposits in the second quarter. We expect this to continue. As I said, we expect for this year a total growth of 10% in deposits. We have been managing also the balance sheet, and when we see that the lending is tracking, then we also go and raise deposits. It's not something that we have been managing. At some time, we are not growing deposits because we don't need them. We prefer to do a more efficient balance sheet management. Of course, we continue to work with customers to increase transactional deposits and side deposits. In terms of time deposit, that is the one that we have been lagging, but lagging on purpose because as we don't see the loans tracking high, we prefer to manage better the balance sheet. But deposits are there. We have tracked, we've improved that.
When we go and look for them, we get those deposits. It's something that will continue raising, if the lending is higher, as we expect it will happen. That was ARS. In terms of dollars, we see some growth, but it will be of course lower than before. We don't have now a tax amnesty like that. There is something, but we don't see that it will be that explosive than the ones of years before. As dollars lending continues, we're going to also be active in the markets with issuances in the local market in dollars, which have been issuing commercial papers, and we'll continue that, to fund also lending in dollars, that is the one from the wholesale arena, was the one that we see tracking better.
It's something that we are not that concerned because we think that we can bring those deposits if the lending is there.
Okay. No, thanks, Gonzalo. Maybe just one follow-up question, I guess this one on capital. You did see a bit of an increase in your capital ratios this quarter, but with ROE still below the cost of capital, how do you think about the capital ratio evolution from here? Thanks.
Our capital ratio, as you know, is high, so it allow us to grow and we think that we have enough capital for the next three years. I would say this year and three more, with healthy growth. Not with the growth that we've been having, which is low. We expect that, at some point, Argentina will start growing its loans as a percentage of GDP. For year-end, we expect to be between 24% and 25%, I would say, capital ratio. But then on top of that, with our estimations, and paying a reasonable amount of dividends, which is more or less what we have been paying in the past, we expect to have capital for the next three years with a country that is growing, in real terms, the lending, and without needing to raise capital, at least for three years. Then, of course, we'll see.
We are okay with this. We prefer. We think that the value of our franchise is the growth ahead rather than higher dividends. We will be combining dividends, but at a point that let us growth and capture the opportunity that Argentina may bring if everything continues in the stabilization path. We think that we have a right level of capital for the growth that Argentina can bring in the next two, three years.
Okay, perfect. Thank you, Gonzalo.
Thank you.
The next question comes from Brian Flores from Citi.
Hi, Gonzalo and Pablo. My question is, on the Net Interest Margin sustainability, this quarter benefited from funding costs repricing faster than asset yields and from stronger results on CR-linked securities. As rates continue to normalize, how should investors think about the balance between Net Interest Margin pressure from lower loan yields, and support from funding costs and treasury positioning?
I would say that, yeah, of course, margins will continue to have pressures on the downside as inflation goes down. For the year, talking about the bank, I think we see margins at 16% for the year, for the full year. We are a bit higher now, but we still see that the second half maybe have some pressure to the downside. Full year, an average of 16, I think is fair to say. But then, of course, next year and forward, and onwards, that will have more pressure to the downside if inflation continues going down, as we expect. But that's fine. We believe that also the inflation accounting will go down, and that's why we're working also in efficiency and expenses reduction in order to compensate that. Of course, total margin is affected by the mix of ARS and dollars, no?
It's totally different, as you know, the mix, the margin between ARS, which is about 20%, and dollars, which is 3%, 4%. As we have been growing the US dollar lending, our margin is also affected by that. It's not that we are deteriorating the ARS margin, but the mix affects the numbers. That will also be affected on the future, depending on how the mix evolves going forward. But again, we are getting ready, our structure, our cost reduction initiatives, and everything, for a bank that will have lower margins. As will happen with Argentina with a lower inflation. On the other side, we will have lower accounting inflation impact, so that will also be compensating the effects.
Good, thank you. Now it's much clearer. Just one follow-up, please. Looking ahead, what do you see as the single largest driver for ROE expansion from current levels towards your through the cycle profitability ambitions? Credit growth, lower credit costs, operating leverage or balance sheet optimization?
I would say that the credit growth, we need to grow our top line, our credit. That's the main one. Cost of risk reduction. We are still at high levels of cost of risk. We know that. We need to continue reducing it. It's something that is low. Of course, we are aiming at some point to get it to a 5.5% cost of risk. We ended with 9.3%. We are still at high levels. That will be reducing quarter by quarter, as I said before. For the year, we expect to be at 8.3%, and we are at 9.3% now. So, that will also be felt in this year and next year, because next year we expect to have another notch down in cost of risk. That will be another big contributor to profitability.
We continue with our work in efficiency, even though we made a big one after the HSBC acquisition. We continue, not with majors initiative, but with our regular business as usual plan of headcount reduction, branches reduction or branches optimizations, that we continue so we can be more efficient, bring more automation, bring more AI to also help to contribute to the margins rise. The only point where it won't come is from margins increase, if Argentina continues in this path. But it will be then a mix of balance sheet growth, long lending growth, better cost of risk, and better efficiency.
Thank you very much.
Thank you.
The next question comes from Yuri Fernandes from JPMorgan.
Hey, Gonzalo, Pablo, Etienne, everyone. Thank you for the opportunity of asking questions. Just a clarification regarding a few of your guidance, especially the cost of risk. I think you mentioned 8.3% for the full year. Just checking if this is the end of period or if this is the average for the year, and if this is Banco Galicia or if this is the entire holding. Because I guess your cost of risk for the first half for the group has been running around 11.5%, and for the bank, around the 9.4%. Just checking 8.3%, this is the fourth Q 2026 or is this the average of the year? That's question number one. The same about margins.
You just mentioned means around 16%, but when I look to the means of the group year, I see your means for the first half closer to 18%, like 17.9%, 17.8%. My question is this average or the end of period? Because if this is the average, this would imply a much lower mean in the second half of the year. Thank you.
Yeah. Sorry. I was talking about the bank. Maybe I didn't clarify that. The 8.3% is just the bank, which is at 9.3% now, going to 8.3% for the full year, for the 12 months, let's say. So 8.3%, we expect to be the cost of risk of the bank only for the full year. When I was talking about margins, yes, I was talking also about the bank, which is around 17% something. So we expect just to end the year at 16%, probably the bank. The full group will be more or less around the total group, I think it's almost 18. I think we expect to end the year around 17%, let's say. The last quarter at 17% in group and 16 in the bank. Cost of risk was bank and it's a full year, the 12 months.
Super clear. Thank you for the clarification.
Thank you.
The next question comes from Eduardo Rezende from UBS.
Hi, everyone. Thanks for taking my questions. I have two on my side. First, a quick follow-up on the growth trends that you have highlighted. You mentioned some opportunities in corporate dollar loans and expanding the private sector. I just would like to know what we could expect for the retail segment. If this more restrictive approach that we saw in recent quarters could continue. This is the first question. The second one is regarding NPLs. You mentioned about some stability trends in the end of the quarter, and we all saw that through the broader system trends. If you could provide a quick call on which segments are driving this more significant inflation, it would be very helpful.
Okay. The first was the growth, no, in retails. We are working hard in trying to grow also the retail portfolio. Mainly the personal loans arena, working with risk in order to go to different segments. We have been seeing our volume in personal loans picking up from the bottom that we had, that it was the first quarter of this year. We have been growing. The 8.3% is moving, the total portfolio is being moved slowly, but we expect that for the second half, that can increase again, very carefully, going to the right segments. We have now better products with lower rates, for better segments than going after those that even though they have lower rates, they have also lower cost of risk, so profitability is the same. My point is, we don't expect the growth we used to have.
Still, this year, of course, at some point, we will resume the growth. For the second half, I would say that our portfolio of personal loans may grow 4%-5%. That is better than what we have been seeing. It is something that we are working on and doing champion-challengers all the time in order to find ways to grow in the retail segment with good credit quality. We expect to improve, not at the point of the commercial lending. Again, we are being very close to that, to see whether it is the moment to restart the growth in that arena. The second point was NPLs, no?
Yeah.
NPLs, yeah, we are starting to see the turnaround of that. The main products we have are credit cards and personal loans. In both, we are seeing that. Of course, as we said before, we are targeting different segments now, and we are attacking also different segments, or I would say higher segments. That is coming back, and that is why we are seeing the improvements. We still continue to do champion-challengers to lower segments, and still it is not the time to grow, to go back to lower segments, but at some point we would. For the end of the year, we expect to be at 6.3% in the bank of NPLs. That is a reduction from where we are now. We are at 8.3%. In general, we are seeing the amounts of customers going or rolling through Stage 2 and Stage 3 improving.
It is something that we expect to continue to see, and we are monitoring that very closely.
Super clear. Thank you.
Thank you.
The next question comes from Carlos Gómez-López from HSBC.
Hello, Gonzalo. Pablo, thank you very much, and congratulations on the results, and especially in the cost reduction. It is very spectacular. I had a question about the composition of the loan portfolio. A year ago, about a quarter was in dollars. Now it is about a third, which is in dollars. Do you have any type of internal limit? Where do you see this portfolio going forward? Since we were asking about economic assumptions, I know this is very difficult, where do you expect the dollars to be at the end of this year and next year? Thank you.
Thank you, Carlos. We have internal limits, but in terms of liquidity. If our deposits grow, we can grow the portfolio. We are very strict in liquidity and very strict limit in liquidity in dollars, because as you know, Argentina has this history of problems with that. We are around 40%, more or less, liquidity in dollars, that we are always 40%-50% liquidity, and we are achieving that, complying with that. Our deposit in dollars grew a lot, so that is why we were able to increase portfolio in dollars. Of course, portfolio in dollars, we have a high proportion of the portfolio in dollars, which is short-term, is exporter financing, which is very easy to not renew if our deposits in dollars go down. Again, we still have some room to grow with the current portfolio, the current deposits.
But we are also, as I said before, issuing dollar commercial paper, so that will give us more capacity to lend in dollars. But the limit, again, is as a liquidity over total deposit that we want to maintain, and we are compliant with that. The other question was?
The dollar.
Dollar effect. For the end of this year, I think we are expecting like ARS 1,600, and around ARS 2,000 for the end of next year.
Very clear. Thank you.
Thank you, Carlos.
The next question comes from Pedro from Latin Securities.
Hello, Gonzalo, Pablo, Etienne. Thank you for taking my question. I wanted to ask on Naranja X, specifically. We saw provisions declining quite significantly, despite the increase in NPLs. Obviously, the loan book also went down. I wanted to ask, going forward, how is the new NPL formation evolving this year, this month, and also on coverage, how should we think this 94%, I think, coverage on Naranja X and 90% on Banco Galicia. Is it more like a floor and would you expect going back to 100%?
Hi, Pedro. We can take the advantage that we have Hernán García, Naranja X CFO, to answer the specific question about Naranja X, and then we can discuss the bank's coverage ratio. Hernan.
Yes. Thank you, Pablo. Pedro, thank you for the question. As you mentioned, we are already seeing a reduction in the cost of risk during the second quarter. For the second half, we still see a further reduction from that metric. In terms of NPLs, from the year-end, we are expecting to be around 16% or 17%, from almost 20% that we have during the second quarter. As I mentioned recently, it's important to stress the trends that we still see in short terms delinquency rates, 30 days or four months rates, delinquency rates are still going down, and that's why we are expecting reductions in NPLs and a recovery in terms of the coverage ratios to the range of 100%.
Perfect. Just to be clear, the number was 17% of NPLs for the year-end?
Yes.
Perfect. Super clear.
Yes. Thank you, Hernan. In the case of the bank, we see a gradual improvement in coverage, perhaps in the next quarter getting to 95% and closer to 100% at year-end.
Wonderful. Perfect. Thank you, Pablo.
You are welcome, Pedro.
The next question comes from Lisandro Guevara from 1618.
Hi, team. I have a question regarding volumes in loans, and if you can please do a double click in the 10%-15% loan growth. If it is expected ARS loans to have a real growth or all real growth will come from dollars loans. Thanks.
Peso loan will be small, the growth. We try to push it, but I would say that peso loan will be very small growth in real terms. Most of the growth will come from the dollar side, I would say. Yes.
Okay, perfect. Thanks.
The next question is from Ignacio Sniechowski from Invertir en Bolsa.
Hi, good morning. Thank you, Gonzalo, Pablo, and the team for taking my question. I have two quick questions, focusing on the bank. Given the 38.8% in the efficiency ratio that you reported in the second quarter, I wanted to know where do you see this metric by the end of 2026, and also, what is the long-term figure that you have in mind once the synergies with Galicia Más and the other initiatives that you are currently fulfilling, that is like a headcount and branch reductions, are completed?
I would say that for 2026, something below 40% for the bank. I would say try to keep this like 39%, around 39%. I think that that will be for the rest of the year. Talking the long term, of course, the idea is every reduction will cost more every point because we will continue to do efficiencies, but if Argentina continues in this path, margins will go down also. I say that if I can to say a longer-term target, I would like to be between 37% and 38%. But anything below 40% for us is good. We will try to aim 37%, 38%, but we need to see how fast the margins also go down.
For us, really, it is very important to continue pursuing cost reductions, and we have now a lot of work streams that implies AI, in the know your customer arena, in the call center and contact teams arena, in order to continue reducing costs. But again, that will also go pari passu with the margin reductions, in the future. So I would say that aiming around 37%, but if we can stay below 40% in the longer run, I think that for us, it is a good achievement.
Okay, thank you. The second question, just quickly, I know it is some kind of very difficult to answer this, but do you anticipate any regulatory improvements? I am specifically regarding the tax component on lending rates or potential reduction on reserve requirements. I know this is something that is very difficult to answer because it implies going on the monetary policy and the fiscal policy, but I am sure you have it in the agenda, and I wanted to know your view on this for the medium and long term.
It is something that, yeah, talking about regulatory reserves, for example, is something that I believe is not in the agenda now of the Central Bank. Of course, talking about longer term, when Argentina continues to grow, it loans to GDP and starts to grow significantly the lending. I think that is something that may come back as an agenda for Central Bank. We do not see this in the short, medium term. But of course, if Argentina goes to that significant growth in lending, we are all expecting, well, that can come back because it may be needed. And talking about tax, I think that the agenda of the government is to reduce taxes. So I think that part of the reduction of the cost of credit for customers is taxes. As you know, for example, VAT, that will not affect us as a bank.
No, but it will affect customers and maybe help to increase lending. I think VAT to consumers, in the lending to consumers, we are one of the few countries in the world that charge VAT to interest. It is something that is coming back in the discussion because of the high interest rates in the market, et cetera. So something that at some point may be addressed to reduce all the tax burden that the tax has, sorry, the lending has, in order to reduce the cost for customers. I see more that, reduction of cost for customers than a benefit to us. We still have, again, as you know, the city taxes and the turnover tax from cities and from provinces, which is a very high burden that we all have.
Yeah.
That is something that we are, as you know, among the banking associations, talking to Banco Central, to everyone, raising the concern, because as margins continue to go down, those costs will need to go down. There is no way that we can continue holding those costs. It is part of what we call the Argentine cost. So that is something that with time, I think that they will need to go down. I do not know when, but it is something that I think that if Argentina continues stabilizing those high taxes, should go down and will go down. It is something that we will be also working with the other banks to always raise that on the table. As you know, talking about regulatory things or whatever, this morning, the government announced a new financing for mortgages. Something that is very new. So we are still analyzing it.
It is time deposits from one to five years to banks in UVA, in inflation-linked time deposits to lend mortgages, with specific matters, interest rate cap for customers, and size to be for first housing only, et cetera. But I think that is a very good news that the government is very welcome, that the government thinking means to help mortgages to grow, and to help how to solve the problem that Argentina does not have a capital market, a developed capital market that can buy securitization of mortgages, et cetera. Something we have discussed in prior calls. So which is good for the financial system, and mainly for the country. As you know, mortgages help to develop economies, families, et cetera. So again, I cannot talk about the specifics of the program because it was announced this morning, so we need to analyze it.
But in general, these initiatives, of course, it is a good news and a good signal that is well received by us.
Okay. Thank you very much.
The next question comes from Federico Cabelli from AdCap.
Hello, team. Thanks for taking my question. We have seen a strong growth in dollar loans, and you mentioned that you aim for growth in the second half of the year. I wanted to ask you about the other announcement, the other Luis's announcement, which allows lending dollar deposits to companies without dollar revenues. I wanted to ask if you plan on growing in this segment also.
Yeah. For us, it does not change much because we already had availability of commercial paper, dollar commercial paper issued. Before this announcement, we could lend to non-dollar producers with those commercial papers. We had availability. For us, it does not bring additional availability. It brings extra availability, but we already had it, so it does not change a lot. We go very careful on that, name by name. We have been doing that with a few big names. It is something that we think will continue to go very carefully because, again, lending in dollars in Argentina could be always a, it brings an additional risk of potential devaluation, et cetera. We continue as we have been done in the past, analyzing name by name, but we do not expect a huge growth because of this.
Because, again, it is something that we go very carefully, just for a matter of prudence with our buyers.
Very clear. Thank you.
The question and answer session is over. We would like to hand the floor back to Pablo Firvida for the company's final remarks.
Well, thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Bye-bye.
Good morning. Bye.
Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.