Pablo Firvida - Director, Investor Relations
Federico Rey – Raymond James
Alonso Aramburu - BTG Pactual
Grupo Financiero Galicia S.A. (GGAL) Q4 2012 Earnings Call February 19, 2013 11:00 AM ET
Good day everyone and welcome to the Grupo Financiero Galicia Fourth Quarter 2012 Earnings Release Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Pablo Firvida. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. Welcome to the Grupo Financiero Galicia fourth quarter of fiscal year 2012 conference call. I am Pablo Firvida, Head of Investor Relations. With me today are some members of the management of the Bank and Grupo. We want to thank you for attending this call.
I will make a short introduction in order to explain the operating conditions under which the reported results have occurred and summarize the Bank’s performance during the quarter. Then we will take your questions.
Some of the statements made during this conference call will be forward-looking statements within the meaning of the Safe Harbor provisions of the US Federal Securities laws. 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.
During the fourth quarter of 2012, overall economic activity showed a moderate growth rate with the European economy giving signals of stagnation, China growing less than during the previous decade and the US improving its economic performance. The main feature of financial markets was increasing volatility due to the US presidential election and the fiscal cliff.
On the international context the Argentine economy showed a weak recovery of 0.5% in the fourth quarter as compared to the third one. Nevertheless, prior estimates of economic activity point to a zero annual growth in the fourth quarter compared to a 1.6% year-over-year contraction in the third quarter.
National fiscal revenues increased 23% year-over-year, while primary expenditures grew 27% year-over-year in the fourth quarter. The primary deficit amounted to 15.6 billion pesos and after interest payments of 18.3 billion pesos and the global balance for the quarter was at 33.9 billion pesos deficit.
Consumer prices expanded 2.7% in the quarter as measured by the official index and 5.4% according to private estimates; while annual inflation rates as of the end of December reached 10.6% on 23.9% respectively.
On the monetary front, the Argentine Central Bank expanded the monetary base by 42.2 billion pesos or 15.9% in the quarter and exchange rate increased from 4.69 to 4.91 pesos per dollar, representing a depreciation of 4.7%.
Average interest rates placed by private banks increased during the quarter. In December, the average rate on peso-denominated bank deposits for up to 59 days increased to 15% from 13.9% in September 2012, while the average rate on overdraft increased 71 basis points to 21.8%.
Private sector deposits at the end of December amounted to 422 billion pesos, growing 7.7% during the quarter. In the same period, peso-denominated deposits increased 11.5% and dollar-denominated deposits increased 3.8%. In turn, transactional deposits increased 12.4% and time deposits 8.8%. It is also worth mentioning that depositing pesos are in dollars show different behaviors in 2012, with deposit in pesos growing 41% and deposit in dollars decreasing 25%.
At the end of the quarter, total loans to private sector amounted to 375 billion pesos, recording a 10.4% increase from September 2012, and a 30.8% in ran rate increase.
Turning now to Grupo Financiero Galicia; net income for the quarter amounted to 368 million pesos and for fiscal year 2012, to 1.34 billion pesos mainly due to profits from its interest in the Bank for 1.2 billion pesos and in Sudamericana Holding for 101 million pesos. Banco Galicia in turn recorded a 1.3 billion pesos net income in fiscal year 2012, 17.5% higher than the 1.1 billion pesos profit reported in fiscal year 2011. This was mainly due to the significant increase in the volume of activity with private sector.
The Bank’s great exposure to private sector reached 51.2 billion pesos, up 39% during the last 12 months and deposits reached 40.3 billion pesos up 32.1% during the same period. At the end of the quarter, the Bank’s estimated market share of loans to private sector was 9.05% from 8.63% a year before and the market share of deposits from the private sector was 9.12% up from 8.78% a year before.
As regards to asset quality, the NPL ratio ended the quarter at 3.37% growing 74 basis points year-over-year but falling 27 basis points during the quarter. The coverage of NPLs with allowances reached [115.25%] down from a 151.95% during the year as the Bank has been using the excess provisioning bill during 2011.
Once again, I would like to mention that due to our consumer finance subsidiaries, the consolidated asset quality figures are different from the financial (inaudible). But if you can see that the Bank on a standalone basis, the asset quality metrics are comparable to our peer group.
The net financial income increased nearly 16% year-over-year due to higher volume partially offset by an increase in the financial margin. The average interest earning assets grew by 10.3 billion pesos year-over-year and its yield increased (inaudible) basis points; while interest bearing liabilities increased 7.5 billion pesos during the same period and its costs increased  basis points. Net income from services increased 33% year-over-year explained by the growth in fees related to credit cards, deposit account fees and financial fees.
Provisions for loan losses for the quarter amounted to 401.7 million pesos, 130.1 million pesos higher than in the same quarter of the prior year mainly focused in the individual’s portfolio. Administrative expenses were 37.2% higher year-over-year with personal expenses growing 38.9% as a consequence of the salary increase agreements with the unions and of the growth in the headcount while the remaining administrative expenses grew 35.2% due to the higher level of activity, the expansion of our distribution network during the last 12 months and the impact of inflation.
As of September 31, 2012; the Bank’s exposure to the public sector excluding debt securities issued by the Argentine Central Bank reached 1.7 billion pesos or 2.7% on total consolidated assets down from 3.3% of total assets at the end of 2011.
At the same date, the Bank’s consolidated computable capital exceeded by 1.3 billion pesos, the 4.3 billion pesos minimum capital requirement and the total capital ratio reached 13%. The Bank’s liquid assets at the end of the quarter represented 57% of the Bank’s transactional deposits and 28% of its total deposits, both ratios lower than in previous quarters as and the great demand grew significantly more than the deposit rates.
The results where in line with our expectations with high volume of intermediation, a slight compression in margins, increases in cost and a gradual asset quality deterioration and with important gains in market share.
We are now ready to answer the questions that you may have. Thank you.
Thank you. (Operator Instructions) We will hear first from Federico Rey of Raymond James.
Federico Rey – Raymond James
I have a question regarding asset quality. For the first time in the past four quarters based on improvements in the asset quality, in the NPL ratio, I would like to (inaudible) you are foreseeing a [decision] in asset quality or this is something related to I don't know one-time event, etcetera? And secondly, on the (inaudible) the segment of the company, I mean talking about the CFA or the Bank, the reason being great improvement. Thank you.
The NPL ratio, yes you are right, improved in the fourth quarter compared to the three previous quarters. Basically, there were some charge-offs during the quarter if we compare the different segments, the Bank is one with best or lower NPL ratio and where the improvement in particular took place and then the credit cards and CFA in that order. To give you an idea today the 3.37% NPL ratio is made up by a 1.9%, for example at the bank level, at 6.5% at credit card companies, and about 11% in CFA.
(Operator Instructions) We will take our next question from Alonso Aramburu of BTG Pactual.
Alonso Aramburu - BTG Pactual
I have a question on expenses’ they’ve been growing at a pace of 35% for this year. How do you see the growth in 2013 and how much continued expansion of distribution network do you expect this year.
Definitely we are envisioning a lower growth rate in our expenses mainly because the reason the expansion of our branch network will be smaller basically. Last year the bank opened like 13 branches and the credit card company something like 45. This year in the case of the bank, we will be closer to seven and in the case of the credit card company about five.
So in that case or just considering the branch expansion, we will have less openings. Then we are in the process of an internal plan, particularly in the case of the bank to control expenses, but we must always have in mind that we are a tied to the salary agreements with the different unions, not only the bank union but also the commerce one that applies to CFA and the credit card companies and the other administration expenses are also related to other providers of services in which the personal expenses are important like security period or cleaning or these kind of services we receive. But the target is to be, I would say, below 30% for all 2013.
(Operator Instructions) And we will take a follow up question from Federico Rey.
Federico Rey - Raymond James
With sort of regarding margins, what's your prediction in terms of net interest margin, considering the decision that you are going to extend the lands to (inaudible) on corporate?
Well in margins, this is softer that much but because of this particular line, actually in 2012, margin was something higher than 2011 and although we see some pressures on the margin, and perhaps we will see some slight compression, but I don't see margins go below the 11.5 or something in that range. Basically we want or we tried to increase other rates when we have fixed rates determined by the Central Bank where you have to try to overcome certain measures.
And Mr. Firvida, we have no further questions at this time.
Okay, thank you everybody for attending this call. If you have any questions please do not hesitate to contact us. Good morning bye, bye.
Ladies and gentlemen again that does conclude today’s conference, we thank you all for joining us.
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