Grupo Financiero Galicia S.A. (NASDAQ:GGAL)
Q4 2015 Earnings Conference Call
February 16, 2016 11:00 AM ET
Pablo Firvida - IR
Santiago Ruiz - TPCG
Welcome to the Grupo Financiero Galicia Fourth Quarter 2015 Earnings Release Conference Call. This call is being recorded.
At this time I’d like to turn the call over to Pablo Firvida. Please go ahead, sir.
Thank you. Good morning and welcome to this conference call. I will make a short introduction and then we will take your questions. I need to say that 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 uncertainty 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 2.2% annual growth for the fourth quarter of 2015, which compares with a 3.3% annual growth in the previous quarter. In the first two months of the fourth quarter of 2015, the primary deficit reached 0.2% of GDP and act as a payment of interest, the global balance represented 0.6% of GDP. Due to methodological reforms, the institute of strategic didn’t publish official inflation for the fourth quarter.
For private estimates, consumer prices expanded 7.2% in the fourth quarter and 27.3% in the year. On the monetary front, the Argentine Central Bank expanded the monetary rates by ARS93.8 billion in the fourth quarter accumulating as such 4.9% [ph] growth during 2015. The monthly average of the foreign currency exchange rate increased from ARS9.37 to ARS11.43 per dollar in the quarter, representing a 22% depreciation.
In December, the average rate on peso-denominated private sector bank deposits for up to 59 days increased to 27.85% from 528 basis points higher than the 22.57% in September 2015. Private sector deposits at the end of the quarter amounted to ARS994 billion growing 12.9% during the fourth quarter of the year. Transactional deposits in pesos increased 14.5% and peso-denominated time deposits increased 5.8%. In 2015, deposits in pesos grew nearly 42% and deposits in dollars expressed in pesos 75%. At the end of December total loans to private sector amounted to ARS797 billion recording 12.6% increased from September 2015, and a 38% inter-annual increase.
Turning now to Grupo Financiero Galicia. Net income for 2015 amounted to ARS4.3 billion, mainly due to profits from Banco Galicia for ARS4.3 billion, from Sudamericana Holding for ARS357 million and from Galicia Administradora de Fondos for ARS110 million.
Net income for the quarter amounted to ARS1.2 billion, 41% higher year-over-year, mainly due to profits from Banco Galicia for ARS1 billion, in Sudamericana Holding for ARS145 million and in Galicia Administradora de Fondos for ARS42 million.
The bank’s net income increased 36% from the year ago quarter. As a consequence of the 54% year-over-year growth of net operating income. Net financial income grew 70% due to an increase in the portfolio of loans to private sector and of government securities offset by a contraction in the spread where net income from services grew 34%, mainly due to fees related to national and regional credit card, to deposit accounts, to insurance and collections.
Average inter-selling assets grew ARS41 billion year-over-year, and its yield increased 71 basis points with a significant growth in the yield on the portfolio of government securities both peso and dollar-denominated offset by 125 basis points decrease in the yield on loans. Interest-bearing liabilities grew by ARS20 billion during the same period and its costs increased to 102 basis points, mainly due to higher average interest rate on bank deposits and on debt securities.
Provision for loan losses for the quarter amounted to ARS691 million, 34% higher than the ARS517 million recorded in the same quarter of the prior year, attributable to the 1% regulatory provision on the loan portfolio in normal situation which recorded a significant growth together with higher provisions on the consumer loan portfolio.
Administrative expenses were up 49% higher year-over-year with personnel expenses growing 46%, mainly due to salary increase agreements with the unions to a compensation agreed with the banking union and to non-recurring human resources expenses. The amortization of organization expenses were ARS194 million increased 94%, as in December 2014 the bank began to amortize its investment in the SAP core banking system. The remaining administrative expenses grew 49%, mainly due to increases in maintenance, cash transportation, taxes and consultants fees.
The bank's credit exposure to the private sector reached ARS115 billion at the end of the quarter up 46% in the last 12 months and deposits reached nearly ARS100 billion, up 54% in a year. The bank's estimated market share of loans to the private sector was 9.6% and the market share of deposits from the private sector was 9.4%, increasing 84 basis points and 62 basis points respectively in the last 12 months.
As it regards to asset quality, the consolidated NPL ratio considering the loan book of the bank the credit card subsidiary and CFA ended the quarter at 3.1% compared with 3.6% of the fourth quarter of the prior year. The consolidated coverage of NPLs with allowances reached a 112% above the 106% figure recorded a year ago. As of December 31, 2015, the bank's consolidated computable capital exceeded by ARS3 billion, the ARS11 billion minimum capital requirements or 27% excess and the total capital ratio reached 13.4%. It is worth to mention that these figures decreased due to certain regulatory changes and that applying the regulations enforced prior to these changes, the ratios would have remain at similar levels to those of the previous quarters. The bank's liquid assets at the end of the quarter represented 92% of the bank's transactional deposits and 43% of its total deposits, compared to 75% and 39% ratios from a year ago respectively. This growth was significantly influence by the seasonal increase of transactional deposits.
As to summary, of the banking activity, I would say that during the fourth quarter and the fiscal year ended on December 31, 2015 and despite the increase administrative expenses the bank had good operating results with growth in both net interest income and net fee income significantly improved its asset quality metrics and liquidity indicators. At the same time market share of private sector loans and deposits also recorded significant increases. It is also worth to mention the expansion in volume of activity and the increase of net income stemming from Sudamericana Holdings, grew forth the insurance business of subsidiary and from Galicia Administradora de Fondos which manages mutual funds.
The profits of these subsidiaries grew 74% and 190% in 2015 respectively, currently representing 8% and 2%, of Grupo Financiero Galicia net income from 6% and 1% of the previous fiscal year.
We're now ready to answer the questions that you may have. Thank you.
Thank you. [Operator Instructions] We'll now take a question from Santiago Ruiz with TPCG.
Hello, Pablo. My question is regarding guidance for the -- if you can provide guidance on loan growth, deposit growth and on cost growth? Thank you.
Hello, Santiago. We are forecasting deposits and loans for the system growing at around our expected inflation that is a roughly 30% -- 29 point something is what our chief economist forecasting, so for the system we are forecasting roughly 30%.
As we always say in our case, we are more aggressive and we want to keep on gain in market shares on our growth for deposits and loans will be a little above those 30% level. In terms of cost, we are planning to open some branches and roughly 16 branches in the next roughly 18 months, we already have six branches approved and so, perhaps the growth in administrative expenses that will be also related to what happens with the wages negotiations with the unions, it could be around 35%.
Okay. Thank you.
[Operator Instructions] It appears there are no further questions at this time. Mr. Firvida, I would like to turn the conference back to you for additional or closing remarks.
Okay. Thank you for attending this call. If you have any questions please do not hesitate to contact us. Good morning.
This concludes today's conference. Thank you for your participation.
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