Banco BBVA Argentina S.A. (NYSE:BBAR) Q2 2022 Earnings Conference Call August 24, 2022 11:00 AM ET
Corporate Participants
Belén Fourcade – IR
Ines Lanusse – IRO
Conference Call Participants
Carlos Gomez – HSBC
Operator
Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina’s Second 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. [Operator Instructions]
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 Mr. Ernesto Gallardo, CFO; Mrs. Ines Lanusse, IRO; and Ms. Belén Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.
Belén Fourcade
Good morning, everyone and welcome to BBVA Argentina’s second 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 and Ernesto Gallardo, our Chief Financial Officer will be available for a 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 effects of inflation adjustments for each period through June 30, 2022.
Now, let me turn the call over to Ines.
Ines Lanusse
Thank you, Belén, and thank all of you for joining us today.
In less favorable global context, facing the difficulties of correcting macroeconomic distortions and meeting the established objectives in the loan agreement reached in March 2022 with International Monetary Fund, market volatility has significantly increased especially in the FX market and local currency debt markets. A high uncertainty persists about the future development of economic policy.
With COVID-19 pandemic situation under control, Argentina has been able to continue with its economic recovery, although within a context of persist 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 support scientific research and culture. The bank works with the highest integrity, long-term vision and best practices and this presents through the BBVA Group in the main sustainability indexes.
Moving into business dynamics, as you can see on Slide three of the webcast presentation, a service offering has evolved in such a way that by the end of June 2022 digital clients’ penetration reached 62% remaining stable compared to a year back. While that of mobile clients reached 54% from 52% in the same period of last year. The response on the side of the customers has been satisfactory and we are convinced this is a bad to pursue in the aim of sustaining and expanding our competitive decision in the financial system.
Retail digital sales have increased from 78.6% in the second quarter of 2021 to 82% of units and slightly increasing from 53.1% to 54%, measured as a percentage of sales.
New customer acquisition through digital channels reached 66% in the second quarter of 2022 from 70% in the second 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 four, we now comment on the bank’s second quarter 2022 financial results. BBVA Argentina second quarter 2022 net income was ARS15.9 billion increasing 235.8% quarter-over-quarter. This implied a quarterly ROE of 28.3% and a quarterly ROA of 4.6%. Operating income in the second quarter of 2022 were ARS32 billion, 10.2% above the ARS29 billion recorded in the first quarter of 2022. Quarterly operating results are mainly explained by one, greater interest income, two, a better net fee income, three, lower operating expense. This allows net operating income to increase above operating expenses. These effects were partially offset by a fall in net income from measured of financial instruments at fair value through P&L, which include the sale of the remaining participation of the Bank in Prisma in the first quarter of 2022.
Net income for the period was improved by a benefit in the tax line as a result of the effects of tax deferrals.
Turning into the P&L lines in Slide five, net interest income for the second quarter of 2022 was ARS54.3 billion increasing 18% quarter-over-quarter and 36.3% year-over-year. Interest income in monetary terms increased more than interest expenses in the second quarter of 2022. In the quarter, interest income increased 23% compared to the first quarter of 2022, 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. Two, an increase in CER/UVA close adjustments, especially from government securities linked to such indexes with position has increased during the quarter.
Income from overdrafts and other loans also stand out mainly because of the adjustment of the increasing rate and an increasing activity. All this was offset by lower income on premium on reverse repos transactions considering that such instruments are gradually removed from the market by the central bank.
Interest expenses increased 29.7% quarter-over-quarter driven by higher time deposits in checking account expenses, together with higher CER/UVA adjustment expenses. Interest from time deposits, including investment accounts explained 69.3% of interest expenses versus 73% the previous quarter.
Net feeing income as of the second quarter of 2022 totaled ARS10.3 billion, increasing 32.4% quarter-over-quarter and increasing 15.8% year-over-year.
In the second quarter of 2022, fee income fell 5.3% mainly explained by a decline in fee link to liabilities especially due to the lack of our increase in prices with last implement to place in the previous quarter.
Regarding fee expenses, this contracted 44.9% quarter-over-quarter, partially explained by the emigration of clients from the lifetime benefit program into the e Puntos BBVA program and lower expenditure linked to credit and debit cards.
On the second quarter of 2022. loan loss allowances decreased 7.7% quarter-over-quarter, thanks to a good portfolio behavior, especially in the commercial book. During the second quarter of 2022, total operating expenses were ARS36.9 billion, increasing 12.6% quarter-over-quarter, 68% were personal benefits and administrative expenses versus 66% on the first quarter of 2022.
Personal benefits grew 19.5% quarter-over-quarter partially explained by the collective wage agreement reached by the unions, and its retroactive effect corresponding to the first quarter of 2042 will impact it in April 2022. Also during the second quarter of 2022, the stock obligations not taken was reevaluated and variable compensation increased.
As of the second quarter of 2022, administrative expenses increased 9.8% quarter-over-quarter, the quarter increase is partially explained by one, an increase in outsourced administrative expenses, two, an increase in rent, and three an increase in software expenses. The negative effect of the aforementioned items were offset by a reduction in the tax line items explained by a fall in municipal charges, maintenance and reparation expenses and in armored transportation given the efficiency plan applied on the latter.
The accumulated efficiency ratio as of the second quarter of 2022 was 71.3%, improving compared to the 72.2% reported in the first quarter of 2022 and deteriorating versus the 70.1% reported in the second quarter of 2021. The quarterly improvement is explained by a higher percentage increase in the denominator and the numerator, especially thanks to better net results from fee and interest income.
In terms of activity on Slide six, total consolidated financing to the private sector in the second quarter of 2022, totaled by ARS519.3 billion, increasing 7.1% in real terms, compared to the first quarter of 2022 and contracting only 1% compared to the second quarter of 2021. In pesos, loans increased 4.7% in the second quarter of 2022, especially driven by an increase in credit cards due to the greater retail consumption, an increase in overdraft mainly promoted by corporate banking transaction and increase in other loan boosted by fees, especially productive investors lines and an increase in discounted instruments.
Loans in foreign currency expressed in pesos increased 45.8% quarter-over-quarter, mainly explained by an increase in pre-financing and financing of exports followed by an increase in other loans and a growth in credit cards. All the aforementioned are explained by greater activity in foreign cards.
During the quarter, the greatest increase was seen in the commercial book, loan portfolio were highly impacted by the effect of inflation in the second quarter of 2022, which reached 17.3%. In nominal terms, BBVA Argentina managed to increase their retail commercial and total loan portfolio by 21.3%, 32.7% and 25.6% respectively during the quarter well beyond real-term growth.
BBVA Argentina’s consolidated market share of private sector loans reached 8.35% as of the second quarter of 2022, from 8.21% a year ago. In the second quarter of 2022, asset quality ratio was 1.08% compared to the 1.29% recorded in the first quarter of 2022. The decrease is mainly explained by a good loan portfolio behavior mainly in the commercial side, as well as growth in the total portfolio. This positively compares to the 3.36% NPL recorded by the banking system as of May 2022, the latest available information.
The coverage ratio was 219.39% in the second quarter of 2022 remaining stable versus 219.73% recorded in the first quarter of 2022. Cost of risk reached 1.94% as of the second quarter of 2022, below first quarter 2022, 2.11%. This is mainly explained by a higher growth in the average loan portfolio versus quarterly loan loss allowances.
On the funding side as seen on Slide seven private non-financial sector deposits in the second quarter of 2022, totaled ARS959.3 billion, increasing 4.9% quarter-over-quarter and falling 2.8% year-over-year. Quarterly increase was mainly explained by sight deposits, which grew 4.4%.
The bank’s consolidated market share of private deposits reached 7.15% as of the second quarter of 2022. Private non-financial sector deposits in pesos increased 7.3% quarter-over-quarter, mainly affected by an increase in sight deposits, especially savings accounts, which grew 18.8%. Foreign currency private deposits expressed in pesos fell 3.8% quarter-over-quarter.
As of the second quarter of 2022, the banks transactional deposits considering checking accounts and savings accounts represent 61.2% of total non-financing private deposits versus 61.3% in the first quarter of 2022. In terms of capitalization BBVA Argentina continues to show strong solvency indicators on the second quarter of 2022.
Capital ratio reached 22.9% from first quarter 2022, 23.5, mostly due to the effect of other comprehensive income in the equity. Exposure to the public sector in the second quarter of 2022, excluding central bank instruments represents 9% of total assets slightly above the 8.9% in the first quarter of 2022 and way below the 15.3 reported by the system by May 2022, the latest available information.
It is worth mentioning that as of the date of this report BBVA Argentina had distributed dividends by ARS8.8 billion instalments one to eight. According to the established schedule published on June 16, 2022. The bank’s total liquid ratio remains healthy at 76.9% of total deposit as of June 30.
This concludes our prepared remarks. We will now take your questions, operator, please open the line for questions.
Question-and-Answer Session
Operator
Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Carlos Gomez from HSBC. Please go ahead with your question.
Carlos Gomez
Hello, good morning. Thank you for taking my questions. Two of them. The first one is, if you can give us some more clarity as to the reason for the extraordinarily positive tax line as you refer to deferred taxes as some more guidance, minimal expenditure might be welcome. And also what do you expect your tax rate to be this year and next year apart from this effect? The second refers to your loan demand, we saw that your loan portfolio was actually flat year-on-year, that’s another [indiscernible] declining. Do you expect positive loan demand for the rest of the year or the beginning of next year? Or we should consider this more of like a one off? Thank you so much.
Ines Lanusse
Hi Carlos. Nice to talk to you. Okay, let me start by your second question regarding loan demand. Firstly, yes, as you mentioned year-over-year we have some net 1% real term growth. But in the quarter already saw 100% growth in real terms mainly coming from the commercial side that started to come.
Going forward for 2022 we are seeing loan growth growing above equation mainly because you’re starting to see more activity basically company started to demand a little bit more. And on the retail, the credit card basement.
Going to your second question on taxes, [indiscernible] taxes function in Argentina. Taxes are paid on the difference between the fiscal and accounting valuation of the fixed asset. What we did is, we had fiscal valuations updated by inflation. And these differences between these two criterias were reduced, generating a lower deferred tax and a positive result in the income tax line in the P&L that you saw.
Let me give you some background on why this happened now and didn’t have it in the past. Consensus for this action was gaining momentum among peers. Since inflation adjusted was implemented in Argentina, and some of other banks have done this already in the past. Actually, there is another peer of us that has implemented this during this quarter as well. This particular thing that happened applies to fixed assets acquired before 2018. And we believed there was no reason to valuate this assets differently from those acquired after 2019. So basically what we did was, have the same country for all our fixed assets. And these gave us a positive result in the P&L.
To give you some color on what would have been the effective tax rate, if we hadn’t implied this changing criteria, you should think that the effective tax rate would have been between the mid and high 20s. And going forward for the year because of this particular effect, you’re going to have actually a positive effective tax rate for 2022.
Carlos Gomez
So, we understand this is one effect adjustments for the second half of the year should see normal tax rate in the high 20s?
Ines Lanusse
Yes, but going forward, full year actually it’s going to be positive because you have this one time effect, the huge one time effects in the second quarter, but it should be normalized in the third and fourth quarter.
Carlos Gomez
I guess my question is, this is one of that affecting only this quarter. So the third and fourth should have a normal taxation.
Ines Lanusse
Yes. That was in the second quarter and you should have it normalized for the second and the third.
Carlos Gomez
Is there anything else in the tax line that we should consider going forward? I mean, the past you had litigation that came out to your favor, now you have this adjustment, is there anything else we should keep in mind or from here on it should be normal taxation?
Ines Lanusse
[Indiscernible] nothing else you should consider.
Carlos Gomez
All right. And on the loan growth, okay, so you expect — you have seen some recovery into do you expect it to continue, do you have an expectation of growing or not growing next year?
Ines Lanusse
We are seeing loan growth growing above inflation till the end of 2022. There’s more activity going on.
Carlos Gomez
Right and for 2023?
Ines Lanusse
Sorry. 2023, it’s difficult to say in Argentina —
Carlos Gomez
Is really far away?
Ines Lanusse
Yes, it’s very far away.
Carlos Gomez
All right. Thank you so much.
Ines Lanusse
You are talking about in terms of June and we are now at the end of August, so only margin.
Carlos Gomez
Thank you so much.
Ines Lanusse
You are welcome.
Operator
[Operator Instructions]. Ladies and gentlemen, at this time, I’m showing no additional questions. We will conclude today’s question-and-answer section. I’d like to turn the floor back over to Ms. Lanusse for any closing remarks.
Ines Lanusse
Okay. Thank you for your time and let us know if you have further questions. Have a good day. Bye.
Operator
And thank you this concludes today’s presentation. You may disconnect your lines at this time and have a nice day.
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