Grupo Financiero Galicia(GGAL) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Grupo Financiero Galicia reported a net loss of ARS 87.7 billion for the quarter, primarily due to losses from Banco Galicia, NaranjaX, and Galicia Seguros, partially offset by profits from Galicia Asset Management [5] - The net operating income decreased by 23%, with net interest income down by 10% and loan loss provisions up by 26% [7][9] - The return on equity (ROE) for the quarter was -4.7%, while the accumulated annualized figures for the fiscal year reached 4.7% [5][12] Business Line Data and Key Metrics Changes - Banco Galicia's extraordinary expenses amounted to ARS 101.1 billion, negatively impacting financial margins due to high interest rates and increased non-performing loans [6] - Peso-denominated loans to the private sector averaged ARS 79.3 trillion, showing a 105.4% year-over-year increase, while dollar-denominated loans reached $18.3 billion, a 153.4% annual increase [4] - Net interest income decreased by 10% compared to the previous quarter, driven by a 35% increase in interest expenses [8] Market Data and Key Metrics Changes - The Argentine economy recorded a 5% year-over-year increase in economic activity during September, with a primary surplus of 0.5% of GDP [2] - The exchange rate averaged ARS 1,400 per dollar in September 2025, reflecting a 15.6% devaluation compared to June 2025 [3] - Private sector deposits in pesos averaged ARS 94.1 trillion, increasing by 53% year-over-year [4] Company Strategy and Development Direction - The company aims to improve profitability in the fourth quarter and next year, with expectations of an ROE in the low teens range for 2026 [15][16] - The focus will be on maintaining liquidity and solvency metrics while navigating high political effects and monetary volatility [12][13] - The company anticipates a peak in non-performing loans (NPLs) around March next year, with expectations of improvement thereafter [17][38] Management's Comments on Operating Environment and Future Outlook - Management noted that margins were low due to high interest rates but are expected to improve in November and December [15][66] - The company is optimistic about the economic outlook, with anticipated growth in lending and market share [35][36] - Management highlighted the importance of monitoring economic conditions and adjusting strategies accordingly, especially regarding loan origination and asset quality [108] Other Important Information - The restructuring expenses associated with the merger with HSBC Argentina amounted to ARS 105.3 billion [5] - The bank's total regulatory capital ratio decreased to 22.1%, while the tier one ratio was 21.8% [12] - The company expects to maintain a comfortable capital level, with a minimum appetite to operate at 13% to 13.5% [24] Q&A Session Summary Question: Capital ratio and ROE expectations - Analyst inquired about the capital ratio and how it relates to ROE targets, especially in light of expected peaks in NPLs [21] - Management responded that the capital ratio was impacted by bond valuations but is now stabilizing, with a comfortable capital level projected [23][24] Question: Loan origination and maturity - Analyst asked about the current state of loan origination and maturity compared to earlier in the year [22] - Management indicated a slowdown in consumer lending due to portfolio quality but expects to see longer-term commercial lending as the market stabilizes [27][28] Question: Long-term growth expectations - Analyst sought clarity on long-term growth expectations and potential private investments in Argentina [31] - Management projected a 25% growth in lending in real terms, with a focus on commercial lending and consumer lending improvements [35][36] Question: Asset quality and NPLs - Analyst questioned the confidence in the peak of NPLs and the expected cost of risk [32] - Management explained that the peak is anticipated around March, with expected improvements in asset quality driven by better origination practices [38][109] Question: Economic assumptions for inflation and interest rates - Analyst requested economic assumptions regarding inflation and interest rates for the upcoming year [88] - Management provided estimates of 30% inflation for this year and 18% for next year, with GDP growth projected at 4% for this year [89] Question: Integration costs from HSBC acquisition - Analyst inquired about any remaining integration costs from the HSBC acquisition [81] - Management confirmed that most restructuring costs have been booked, with only minor expenses expected in the fourth quarter [82]