Grupo Financiero Galicia S.A. (NASDAQ:GGAL)
Q2 2014 Earnings Conference Call
August 11, 2014 11:00 AM ET
Pablo Firvida - Head of Investor Relations
Santiago Ruiz - Raymond James
Alonso Aramburu - BTG
Welcome to this Grupo Financiero Galicia Second Quarter 2014 Earnings Release Conference Call. Today's call is being recorded, and at this time I’d like to turn the call over to Mr. Pablo Firvida. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. Welcome to the Grupo Financiero Galicia’s second quarter of fiscal year 2014 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 U.S. 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.
According to prior estimates, the Argentine economy showed a 1.5% annual fall in the second quarter of 2014, which compares with a 0.2% fall in the previous quarter. Considering the data of April and May, we estimate a primary surplus of 0.1% of GDP and a lower deficit of 1% of GDP for the second quarter. Consumer prices expanded 4.6% in the second quarter as measured by the official index and 8.4% according to private estimates, while annual inflation rates as of the end of June reached 15% and in the order of 40% respectively.
On the monetary front, the Argentine Central Bank expanded their monetary base by ARS21.6 billion in the second quarter and the average monthly foreign currency exchange rate increased from ARS7.93 to ARS8.13 per $1, representing a 2.4% depreciation. In June, the average rate on peso-denominated private sector bank deposits for up to 59 days decreased to 22.6% from 25.1% in March 2014, while the average rate on overdraft decreased 110 basis points to 32.2%.
Private sector deposits at the end of the quarter amounted to ARS627 billion, growing 9.8% during the quarter. Peso-denominated deposits increased 10% and dollar-denominated deposits 5.6% in the period, while in the last 12 months deposits in pesos grew 30.4% and deposits in dollars increased 1.6%. During the quarter, transactional deposits increased 16.2% and time deposits increased 3%.
Regarding total loans to private sector, they grew 3.4% in the quarter and 24.3% in the last 12 months reaching ARS524 billion at the end of June.
Turning now to Grupo Financiero Galicia. Net income for the quarter amounted to ARS693 million, mainly due to profits from its interest in the Banco Galicia for ARS647 million and in Sudamericana Holding for ARS51 million. Banco Galicia’s net income for the second quarter amounted to ARS673 million, 76% higher than the ARS383 million profit reported in the same quarter of 2013, mainly due to the 32% growth in operating income which was higher than the increases of 30% in provision for loan losses and up 23% in the administrative expenses.
The bank's credit exposure to the private sector reached ARS70 billion at the end of the quarter, up 21% in the last 12 months and deposits reached ARS59 billion, up 32% during the same period. The bank's estimated market share of loans to private sector was 8.65% and the market share of deposits from the private sector was 8.93%.
The quarter’s net financial income increased 37% year-over-year primarily due to increase in the volume of activity with the private sector, partially offset by a decrease in the spread. The financial margin increased 26 basis points reaching 12.56% with average interest earning assets growing nearly ARS18 billion year-over-year and its yield 527 basis points, while interest-bearing liabilities grew by ARS15 billion during the same period and its costs increased 679 basis points, both yields and costs growing in line with market dynamics.
Net income from services increased 26% year-over-year explained by the growth in fees related to credit cards and to deposit accounts. Provisions for loan losses for the quarter amounted to ARS567 million, 30% higher than in the same quarter of prior year, increase recorded mainly in the consumer loan portfolio.
As regard to asset quality, the NPL ratio ended the quarter at 4% growing 10 basis points year-over-year. The coverage of NPLs with allowances reached a 101.7% down from 104.5% from a year before.
Administrative expenses were 23% higher year-over-year with both personal expenses and the remaining administrative expenses growing at the same pace. As a consequence of the salary increase agreements offset by the decrease in staff and to the increase in the cost of different services provided to the banks.
As of June 30, 2014, the bank's consolidated computable capital exceeded by ARS2.1 billion, the ARS6.6 billion minimum capital requirement or 31.8% and the total capital ratio reached 14.4% increasing 33 basis points in the year. The bank's liquid assets at the end of the quarter represented 85% of the Bank's transactional deposits and 40% of its total deposits, higher than the 53% and 26% ratios from a year ago respectively.
In summary, during the quarter, the banks had good operating results in a challenging environment; brokerage efficiency kept its profitability high, improved its capital ratio, [indiscernible] liquidity indicators and monitors the asset quality closely.
We are now ready to answer the questions that you may have. Thank you.
(Operator Instructions) Our first question comes from Santiago Ruiz from Raymond James.
Santiago Ruiz - Raymond James
I’d like to know if you could speak a little more about the recently imposed caps on interest rates and on the impact that this could have on the bank?
Hi, Santiago. The caps on interest rates on personal loans and bridge loans cap really will have -- because it was issued by mid June, a little impact in the bank and in the credit companies [indiscernible] in the first reaction to CFA is that it will have some impact, the company is working to try to avoid a loss in profitability. Basically taking commercial actions, grade reductions and also decreasing a little bit the structure. In the case of the bank and the credit card companies, the caps are in most of segments above the interest rates we were charging and the South America, with the credit card companies. Iin CFA, the first reaction is to restrict credit to the riskier segments and also to try to adapt through cross selling and different commercial actions.
Santiago Ruiz - Raymond James
One additional comment to keep in mind, CFA’s loan book is roughly 5% of our consolidated loan book. So overall the impact is not very -- or at least we think it will not be even a marginal.
(Operator Instructions). We do have a question coming through from Alonso Aramburu with BTG.
Alonso Aramburu - BTG
Just a question on loan growth. There has been a clear deceleration in the last couple of quarters. Just wondering what your outlook is for the second half, are you comfortable with loans, maybe we can have some speed or do you think the environment is too uncertain for loan growth to pickup and some growth in the second half of the year?
Yes, we are seeing a deceleration in loans basically due to less demand. You noticed that deposits grew faster than loans. One of the reason is that the increase in interest rates. For the rest of the year, while we have to learn the productive line like ARS2.7 billion. For all 2014, we are still projecting something above 20% for the consolidated loan book, 20 to 22, not the high 20s, low 20s.
Alonso Aramburu - BTG
So similar growth that one you had in the last quarter I guess. Okay, and my second, I mean you’ve got some nice improvements in efficiency and you have been able to control the expenses nicely in the last couple of quarters, do you think there is more space for that or do you think expenses should continue to now grow in line with inflation?
No. We think we can keep our cost control program for all 2014 and particularly in the second quarter, expenses will grow below inflation. Sorry, I don’t know if I said second quarter or second half. For the second half, we forecast a growth of expenses below inflation.
(Operator Instructions). Mr. Firvida, we have no other 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, and thank you again. Bye, bye.
And ladies and gentlemen, this does conclude today's conference. We appreciate your participation.
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