Banco BBVA Argentina S.A. (NYSE:BBAR) Q3 2022 Earnings Call Transcript

Banco BBVA Argentina S.A. (NYSE:BBAR) Q3 2022 Earnings Call Transcript November 23, 2022

Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's Third Quarter 2022 Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the Company presentation. After the Company's remarks are completed, there will be a question-and-answer session. First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2021 filed with the U.S. Securities and Exchange Commission. Today with us, we have Mrs. Carmen Morillo Arroyo, CFO; Mrs. Ines Lanusse, IRO; and Mrs. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Photo by Vardan Papikyan on Unsplash

Belen Fourcade: Good morning, and welcome to BBVA Argentina's third quarter 2022 earnings conference call. Today's webinar will be supported by a slide presentation available on our Investor Relations website on the Financial Information section. Speaking during today's call will be Ines Lanusse, our Investor Relations Officer; and Carmen Morillo Arroyo, our new Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1, 2020, as per Central Bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS-29. For ease of comparability, 2021 and 2022 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2022. Now let me turn the call over to Ines.

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Ines Lanusse: Thank you, Belen, and thank you all of you for joining us today. As we are all aware, the combination of an unstable global context and the difficulties of our country to correct current macroeconomic distortions and to meet the established objectives in the loan agreement with the IMF, local market volatility especially in the FX markets and local currency debt markets, a high uncertainty persists about the future development of our economic policy. Being this said, Argentina has been able to continue with its economic recovery, although within a context of present great challenges with a sustained high inflation and a capped foreign exchange rate. BBVA Argentina has a corporate responsibility with society, characteristic of the Bank's business model, which encourages inclusion, financial education and supports scientific research and culture.

The Bank works with the highest integrity, long-term vision and best practices and is present through the BBVA Group in the main sustainability indexes. Moving into business dynamics, as you can see on Slide 3 of the webcast presentation, our service offering has evolved in such a way that by the end of September 2022, retail digital clients' penetration reached 62%, slightly increasing from a year back, while that of retail mobile clients reached 55% from 52% as of the same period of last year. The response on the side of the customers has been satisfactory and we are convinced this is the best to pursue in the aim of sustaining and expanding our competitive position in the financial system. Retail digital sales have increased from 79.6% in the third quarter of 2021 to 83.4% of units and represents 55.7% of the Bank's total sales measured in monetary values versus 52.8% in the third quarter of 2021.

New customer acquisitions through digital channels reached 66% in the third quarter of 2022 from 67% in the third quarter of 2021. The Bank actively monitors its business, financial conditions and operating results in the aim of keeping a competitive position to face contextual challenges. Moving to Slide 4. I will now comment on the Bank's third quarter 2022 financial results. BBVA Argentina third quarter 2022 net income was ARS9.7 billion, decreasing 50% quarter-over-quarter. This implies a quarterly ROE of 13.5% and a quarterly ROA of 2.4%. Operating income in the third quarter of 2022 was ARS48.4 billion, 24% above the ARS39 billion recorded in the second quarter of 2022. Quarterly operating results are mainly explained by: one, greater interest income; two, higher income from measurement of financial instrument at fair value through P&L; and three, lower operating expenses, mainly personnel expenses.

This allowed net operating income to increase above operating expenses. These effects were partially offset by a fall in net fee income, mainly affected by the negative effect of inflation. Net income for the period fell 50% quarter-over-quarter due to the contrast generated by the effects of a benefit in the income tax line, as a result of the implications of tax deferrals, recorded in the second quarter of 2022. In the first nine months of 2022, the accumulated net income was ARS34.8 billion, 28% above the ARS27.2 billion recorded in the first nine months of 2021. The nine-month accumulated ROA reached 2.9%, while the nine-month accumulated ROE was 16.8%. Turning into the P&L lines in Slide 5. Net interest income for the third quarter of 2022 was ARS76.6 billion, increasing 15.6% quarter-over-quarter and 43.3% year-over-year.

In third quarter of 2022, interest income in monetary terms increased more than interest expenses, mainly due to: one, higher income from government securities; two, an increase in income from interests from loans, in particular, overdraft and discounted instruments; and three, increases in income from CER/UVA clause adjustments. The items mentioned take place in a context of increasing interest rates, product of sequential increases in the monetary policy rate by Central Bank as well as an increase in the inflation rate. In the quarter, interest income totaled ARS144.3 billion, increasing 18.8% compared to the second quarter of 2022. Quarterly increase is mainly driven by: one, higher income from government securities, both from an increase in the nominal rate and the volume in the position of LELIQ; and two, an increase in interests from loans, mainly overdrafts and discounted instruments, especially due to the increment in interest rates and higher activity.

Interest expenses totaled ARS67.7 billion, denoting a 22.5% increase quarter-over-quarter. Quarterly increase is described by higher time deposit expenses together with higher CER/UVA adjustment expense. Interest from time deposits, including investment accounts, explain 70.9% of interest expenses versus 69.3% the previous quarter. Net fee income as of the third quarter of 2022 totaled ARS9.1 billion, decreasing 27.5% quarter-over-quarter. In third quarter 2022, income fell 5.9%, mainly explained by a decline in fee from credit cards, mostly due to the effect of inflation and an increase in the use of the Puntos BBVA benefit program. This was offset by an increase in fees linked to deposits given the average increase in prices of accounts and packages maintenance during the month of September.

Regarding fee expenses, this increased 48.4% quarter-over-quarter. Higher expenses in the quarter are partially explained by expenditures linked to credit and debit cards due to the higher client acquisition costs. In the third quarter of 2022, loan loss allowances increased 37%, mainly due to the periodic update of macroeconomic scenarios in IFRS 9 impairment model. During the third quarter of 2022, total operating expenses were ARS43.8 billion, decreasing 2.9% quarter-over-quarter, 32% were personnel benefits versus 34% on the second quarter of 2022. This effect surpassed the collective agreement with unions corresponding to the third quarter of 2022 and the revaluation of stock of vacation not taken. As of the third quarter of 2022, administrative expenses also decreased 1.8% quarter-over-quarter.

The quarterly decrease is partially explained by: one, a reduction in rent; two, greater efficiency in armored transportation; and three, an improvement in maintenance, electricity and advertising costs, among others. The accumulated efficiency ratio as of the third quarter of 2022 was 69%, improving compared to the 71.3% reported in the second quarter of 2022. The quarterly improvement is explained by a decrease in expenses and also an increase in income, both due to a reduction in expenses as well as a significant increase in interest income. In terms of activity on Slide 6, total consolidated financing to the private sector in the third quarter of 2022 totaled ARS582.4 billion falling 8% quarter-over-quarter and 6.4% year-over-year. Loans to the private sector in pesos decreased 6.3% in the third quarter of 2022.

During the quarter, the decline was especially driven by an 8.6% fall in credit cards, a 13.6% decrease in other loans followed by a 5.7% fall in consumer loans. Regarding our other loans, the main fall is observed in commercial loans PIV. These decreases were offset by a 6.4% and a 27.5% increase in overdrafts and in receivables from financial leases. Loans to the private sector denominated in foreign currency fell 27.8% quarter-over-quarter. Quarterly decrease is mainly explained by 47.9% decline in other loans followed by a 22.4% fall in prefinancing and financing of exports and a 12.5% fall in credit cards. During the quarter, both the retail and commercial portfolio fell . Loan portfolios were highly impacted by the effect of inflation during the third quarter of 2022, which reached 22%.

In nominal terms, BBVA Argentina managed to increase the total loan portfolio by 11.9% during the quarter. BBVA Argentina's consolidated market share of private sector loans reached 8.47% as of the third quarter of 2022, improving from 8.10% . In the third quarter of 2022, asset quality ratio or NPL was 1.07% compared to the 1.08% recorded in the second quarter of 2022. This is mainly explained by a similar percentage reduction of both the non-performing portfolio as well as the total portfolio. The coverage ratio was 236.87% in the third quarter of 2022, above the 219.39% recorded in the second quarter of 2022. The increase in coverage is merely the product of a greater fall in the non-performing portfolio versus a lower percentage fall of allowances.

Cost of risk reached 2.65% as of the third quarter of 2022, above second quarter 2022's 1.94%. This is mostly explained by a growth in loan loss allowance in the quarter, mainly due to the periodic update of macroeconomic scenarios in IFRS 9 model impairment. On the funding side, as seen on Slide 7, private non-financial sector deposits in the third quarter of 2022 totaled ARS1.1 trillion, falling 9.9% quarter-over-quarter and 7.2% year-over-year. Quarterly decrease was mainly explained by sight deposits. The Bank's consolidated market share of private deposits reached 6.68% as of the third quarter of 2022. Private non-financial sector deposits in pesos decreased 9.8% compared to the second quarter of 2022. The quarterly change is mainly affected by a decrease in sight deposits especially checking accounts by 23.3%, followed by saving accounts by 17.9%.

This was partially offset by an increase in investment accounts by 14.7%. Private non-financial sector deposits in foreign currency expressed in pesos fell 10.6% quarter-over-quarter. As of the third quarter of 2022, the Bank's transactional deposits considering checking accounts and saving accounts represents 55.2% of total non-financing private deposits versus 60.2% in the second quarter of 2022. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators in the third quarter of 2022. Capital ratio reached 26.2%. Exposure to the public sector in the third quarter of 2022, excluding Central Bank instruments, representing 9.8% of total assets, slightly above the 9% in the second quarter of 2022 and way below the 13.1% reported by the system as of August 2022.

It is worth mentioning that as of the date of this report, BBVA Argentina has distributed dividends by ARS12.1 billion installment 1 to 11 according to the established schedule published on June 16, 2022. The 12 on last installment was announced last Friday, November 18. The Bank's total liquidity ratio remained healthy at 79% of total deposits as of September 30. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

Operator: We will now begin the question-and-answer session.

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