Earnings call transcript: Grupo Financiero Galicia Q2 2025 beats EPS forecast significantly

Grupo Financiero Galicia (GGAL) reported its second-quarter 2025 earnings, showcasing an extraordinary earnings per share (EPS) of 107.48, far exceeding the forecasted 1.13. This surprising result marks a 9411.5% beat over expectations. The stock, currently trading at a modest P/E ratio of 5.95x, experienced a minor dip of 0.08% to close at 39.79. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, with technical indicators suggesting oversold conditions.

Key Takeaways

• Grupo Financiero Galicia’s EPS surpassed forecasts by 9411.5%.
• Net income dropped 70% year-over-year, despite the EPS beat.
• Successful merger with Galicia Mas increased market share in loans and deposits.
• Stock price remains near its 52-week low, indicating cautious investor sentiment.

Company Performance

Grupo Financiero Galicia’s overall performance in Q2 2025 was marked by strategic achievements, including the successful merger with Galicia Mas, formerly HSBC in Argentina. This merger contributed to a 2.5% increase in market share for loans and deposits. However, the company’s net income fell significantly by 70% compared to the previous year, reflecting underlying challenges despite the EPS beat.

Financial Highlights

• Net income: ARS 173 billion, down 70% YoY.
• Annualized return on assets: 1.9%.
• Return on equity: 9.5%.
• Banco Galicia profit: ARS 98 billion.
• Naranja X profit: ARS 32 billion.
• Galicia Asset Management profit: ARS 27 billion.
• Galicia Seguros profit: ARS 13 billion.

Earnings vs. Forecast

Grupo Financiero Galicia’s EPS of 107.48 was a dramatic beat against the forecasted 1.13, resulting in a surprise percentage of 9411.5%. This deviation from expectations is significantly higher than previous quarters, suggesting either an accounting anomaly or substantial one-time gains.

Market Reaction

Despite the extraordinary EPS result, the stock price dipped slightly by 0.08% to close at 39.79. The minor decline reflects investor caution, likely due to the substantial drop in net income and potential restructuring costs, which may overshadow the positive EPS news.

Outlook & Guidance

The company projects a return on equity of 9-11% for 2025, with anticipated loan growth of 30-40% and deposit growth of around 35%. The restructuring following the HSBC integration is expected to incur one-time expenses, potentially impacting ROE by up to 2 percentage points. Non-performing loans are expected to stabilize by the end of Q3 or early Q4.

Executive Commentary

Gonzalo Fernandez Cabaro, CFO, emphasized the transitional nature of the year, highlighting the completion of the HSBC integration and ongoing efforts to stabilize portfolio performance. He stated, "We want to be the everyday bank for our customers," underscoring the company’s focus on customer-centric growth.

Risks and Challenges

• Restructuring expenses could impact short-term profitability.
• High inflation in Argentina poses macroeconomic risks.
• Potential margin compression in Q3 could affect earnings.
• Ongoing challenges in consumer lending could hinder growth.
• Market volatility and currency fluctuations remain concerns.

Q&A

During the earnings call, analysts inquired about the challenges in the consumer lending portfolio and the expected margin compression in Q3. The company addressed strategies for commercial lending growth and emphasized its focus on customer acquisition and retention.

Full transcript - Grupo Financiero Galicia SA ADR (GGAL) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia Second Quarter twenty twenty five Earnings Call. This conference is being recorded, and the replay will be available at the company’s website at gfgsa.com. We would like to inform that all attendees will only be listening the conference during the presentation, and then we will start the question and answer section when further instructions will be provided. 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 law and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in their respective forward looking statements. Now I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations.

You may begin your conference.

Pablo Firvida, Head of Investor Relations, Grupo Financiero Galicia: Thank you, Sofia. Good morning, and welcome to this conference call. I will make a quick speech. I’m here with Gonzalo Fernando Cabaro, CFO of Grupo and of the bank. Later, he will make some additional comments.

And of course, we will be both available for Q and A. According to the monthly indicator for economic activity, EMAE, the Argentine economy recorded a 6.4% year over year increase during June, reaching an expansion of 6.2% during the 2025. During the second quarter, the primary surplus reached 0.4% of GDP, and the overall surplus was 0.2% of GDP, explained by primary revenues increasing 37.7% year over year, whereas primary spending rose 42.1%. During the 2025, the primary balance stood at 1.1% of GDP, while the financial balance amounted to 0.3% of GDP. The National Consumer Price Index accumulated a 6% increase during the 2025 and a 17.3% year to date increase as of July.

Between May and July, monthly inflation slipped below 2% threshold. In July, monthly inflation stood at 1.9% and accumulating 36.6% in year over year terms. The monetary base increased by 6,000,000,000,000 in the quarter, recording an 84.2% increase in year over year terms. On 04/11/2025, the Central Bank implemented a foreign exchange ban system within which the exchange rate may fluctuate freely. These bans were initially set between MXN 1,000 per dollar and MXN 1,400 per dollar and are adjusted monthly at a rate of minus 1% for the lower bound and plus 1% for the upper bound.

The exchange rate averaged $11.81 per dollar in June 2025, a 23.5% devaluation in Europe over year terms. During the 2025, the benchmark interest rate was set by the Central Bank. However, on July 10, the Monetary Authority ceased offering LEFIS and the interest rate is currently determined endogenously by the market, in line with the regime focus on monetary aggregates. In June 2025, the average rate on peso denominated private sector time deposits for up to fifty nine days stood at 32.2%, 1.1 percentage points below the June 2024 average. Following the change in monetary policy, in mid July, interest rates increased and ended the month at 37.4%.

Private sector deposits in pesos averaged ARS89.1 trillion in June, increasing by 10.6% during the quarter and 69.1% in the last twelve months. Time deposits in pesos rose 5.3% during the quarter and 93% in the year, while peso denominated transactional deposits increased 16.4% during the second quarter and 49.6% in year over year terms. Private sector dollar denominated deposits amounted to $30,400,000,000 in June 2025, increasing 2.5% during the quarter and 71.8% in the last twelve months. Peso denominated loans in private sector averaged 72,300,000,000,000.0 in June, showing a 19% quarterly increase and a 181.7% year over year expansion. Private sector dollar denominated loans amounted to $15,800,000,000 recording a 12.1% quarterly growth and a 147.3% annual increase.

Turning now to Rupo Financiro Galicia. I would like to mention that at the June, we successfully finished the merger with Galicia Mas, former HSBC in Argentina. We unified the banking unit with Banco Galicia, the mutual fund management with Galicia Asset Management and the insurance companies with Galicia Seguros. The change for the clients was very smooth with no frictions, and we grew around 2.5% in market share of both loans and deposits. For comparison purposes, figures for the 2025 include the balances of the merged companies, while the figures of the 2024 are not fully comparable as they do not include any HLEC figures.

Going now to the results for the quarter. Net income amounted to Ps. 173,000,000,000, 70% lower from the year ago quarter. The result comes from profits from Banco Galicia for ARS 98,000,000,000 from Naranja X for ARS 32,000,000,000 from Galicia Asset Management for ARS 27,000,000,000 and from Galicia Seguros for ARS 13,000,000,000. This profit represented a 1.9% annualized return on average assets and a 9.5% return on average shareholders’ equity.

The result from Banco Alesia was negatively affected by the increase in the cost of risk associated with the growth of the loan book and the increase in the nonperforming loans in the Retail segment, particularly in personal loans and credit card financing. The net income for the quarter was 76% lower than in the same quarter of 2024 due to a 67% lower operating result. This was primarily a consequence of a 40% decrease of net operating income as net interest income decreased 36%, net results from financial instruments were down 37% and loan loss provisions increased 192%, which were partially offset by a 30% growth of net fee income. Average intersending assets reached ARS 17,300,000,000,000.0, 38% higher than in the same quarter of 2024, primarily due to 117% increase of the average portfolio of loans in pesos and a 262% higher dollar denominated loan portfolio, partially offset by a 94% reduction in the average balance of other interest earning assets in pesos. In the same period, its yield decreased 35 percentage points, reaching 37.4%.

Interest bearing liabilities increased 74% from June 2024, amounting to ARS 14,800,000,000,000.0, primarily due to the increase of time deposits in pesos and of saving accounts in dollars. During this period, its cost decreased 15 percentage points to 15.6%. Net interest income decreased 36% when compared to the 2024. This was the result of a 29% decrease in interest income because of a 62% lower interest on government securities and a 99% lower interest on repo transactions, together with a 13% decrease in interest expenses due to a 6% lower interest on time deposits and a 27% lower interest on other deposits. Net fee income increased 30% from June 2024 due to a 51% higher income from credit card fees and a 28% from fees from on deposits.

Net income from financial instruments decreased 37% due to a 53 lower result from government securities. Gains from FX quotation difference were 12% lower from the year ago quarter, including the results from foreign currency trading. It is worth to mention that during April, many regulations that limited the access to the FX market were removed mainly for individuals and thus FX trading increased significantly, growing 153% when compared to the first quarter of this year. Other operating income increased 150% in the quarter, mainly due to the 290% increase in other adjustments and interest on miscellaneous receivables and of 145% in other operating income. Provision for loan losses increased 192% because of the growth of the financing portfolio and to an increase in delinquency that is circumscribed to the portfolio of personal loans and credit card financing to individuals.

Personnel expenses were 3% lower than a year before. It is worth to mention that in the first quarter, we began to use the provision for restructuring expenses established in the fourth quarter of last year. Administrative expenses increased 35% due to a 77 increase of expenses for maintenance and repairment of goods and IT and to a 62% increase of higher administrative services. Other operating expenses increased 13% due to a 12% higher turnover tax related to financial operations. Results from the monetary position decreased 56% year over year following the declining evolution of inflation.

The income tax charge was 75% lower than in the year ago quarter due to lower operating results. The bank’s financing to the private sector reached ARS 16,900,000,000,000.0 at the end of the quarter, up 123 in the last twelve months, with peso financing increasing 106% and dollar denominated financing growing 181%. Worldwide credit line, promissory notes increased 92%, credit card financing 66% and personal loans two zero one percent. Net exposure to the public sector decreased 33% year over year, primarily due to the 39% decrease in government securities adjusted by CPI at amortized cost and to the 99% reduction of repo transactions with the Central Bank. This exposure represented nineteen percent of total assets as of the end of the quarter compared to 42% of the year before.

Deposits reached ARS 19,900,000,000,000.0, 72% higher than a year before, mainly due to a 162% increase in saving accounts in dollars, a 76% increase in time deposits in pesos and a 47% increase in peso denominated checking accounts. The bank’s estimated market share of loans to the private sector was 14.5%, two sixty basis points higher than at the end of a year ago quarter and the market share of deposits from the private sector was 16%, five fifty basis points higher than in the same quarter of 2024. The bank’s liquid assets represented 94.3% of transactional deposits and 65.2% of total deposits compared to 147.7101.5%, respectively, from a year before. As regards asset quality, the ratio of nonperforming loans to total financing ended the quarter at 4.4%, recording a two forty basis points deterioration as compared to the 2% of the second quarter of the prior year. And as I mentioned before, the deterioration is limited to the personal loans and credit card financing portfolios.

At the same time, the coverage with allowances reached 117.9%, down 42.4 percentage points from the 160.3% recorded a year ago. As of the June 2025, the bank’s total regulatory capital ratio reached 23.7%, decreasing five ten basis points from the end of the same quarter of twenty twenty four, while the Tier one ratio was 23.2%, down four sixty basis points during the same period. In summary, in a challenging and volatile political and macro environment, Grupo Financiro Balicia was able to keep liquidity, solvency and profitability metrics at healthy levels, adapted its strategy for credit granting to the new context in order to prioritize lower risk segments and to revert the trend of deterioration in asset quality and completed a very fast and successful integration with Galicia Mas. Lastly, on August 6, the Board of Directors of Banco Galicia elected Diego Rivas as CFO CEO of the bank, while Fabiancon will remain as the CEO of Grupo Galicia. This will be implemented as of September 1.

Now I would like to give the word to Gonzalo Fernandez Cabaro for additional remarks.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: Thanks, Pablo. Hi, everyone. Well, regarding how we see the rest of the year. As you know, government has tightened its monetary policy, increasing minimum liquidity requirements. And that has generated a significant increase in short term interest rates together with high volatility.

The Itamar rate has increased from 30% level to 60% levels in a very short period of time. This change in interest rates are impacting the local financial system as our funding is very short term. So it reprices very fast, but assets are taking more time to reprice as now we have more loans in our asset composition. We are seeing a margin compression in the third quarter that is expected to be temporal and could finish after elections once the political side is clear, but it’s something that we cannot define when this will stabilize and change again. Of course, this is something we had expected a couple of months ago, and we are still evaluating the impact as the rate is very volatile and changed significantly from one day to the other.

And also, we have been having new regulations and changes in minimum liquidity requirements in a short period of time. On the other hand, as we have been explaining in prior calls, the portfolio performance of consumer lending in Argentina has deteriorated. It’s a market issue as the people need to get used to manage credit in low inflation environment coming from negative interest rates to very positive interest rates. Also the effect of having lower disposable income as utility prices has went up. We are expecting stabilization of the NPLs on the consumer lending by the end of third quarter.

We started to see a lower or slower deterioration and start stabilization end of third quarter, beginning of the fourth quarter. As we also have told in prior calls, we have implemented many changes in our loan origination, in collections, in changing credit limits that have been successful but takes some time to fully impact the portfolios. Consider these effects, we expect our ROE to be in the range of 9% to 11% for 2025. To give also more context, this guidance does not include any additional restructuring cost onetime that we may have in the second half. We have been anticipating in all the calls and presentation, we have implemented a voluntary redundancy program that we implemented to achieve the structure rightsizing after the HSBC acquisition.

And it’s very it’s been very successful. As you can see in our press release, we already made a significant headcount reduction from first quarter to second quarter. If this continues, it could imply additional onetime expenses in the second half of the year as the provision that we booked at last year may not be enough. We expect that the impact will go up to two points of ROE that are not included in the guidance that I just mentioned, if all eligible people sign up for the program. If this happens, of course, it’s excellent news for us.

Yes, we will achieve our rightsizing by year end much better than what we expected at the beginning of the year with a onetime P and L impact that will not repeat in the future. So we said so that’s something that we don’t know if it will happen, but the pace that the program is happening may infer that that will happen. As we said in prior also calls, we consider this year a transition year where we finished the HSBC integration. We’ll rightsize the structure, grow and stabilize portfolio performance so we can start 2026 with all our potential and deliver our sustainable ROEs. So that were the remarks I wanted to make.

So open for questions if you want.

Pablo Firvida, Head of Investor Relations, Grupo Financiero Galicia: Yes. Thank you, Ansado. We are now ready to answer the questions that you may have.

Conference Operator: Thank Our first question comes from Brian Flores with Citi.

Brian Flores, Analyst, Citi: Good morning, Gonzalo, Pablo. Thank you for the presentation. Gonzalo, a follow-up on the comments you made on the guidance. So 9% to 11%, is this representing any adjustments on the previously guided ranges for loan growth and deposits? I think that’s maybe the first question.

If I may, I’ll ask the second one after that one. Yes.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: I mean, loan growth could be we’re talking about 50% before. We are now seeing it more closer to 40%. In part of lack of with all this volatility, demand is also accelerating, plus the measures we took to stabilize consumer lending, also to reduce the mortgage space because of lack of securitization in the market. So we see more large 30s, 40% growing in lending and deposits around 3530%, 35%.

Brian Flores, Analyst, Citi: Perfect. Super clear. And then wanted to ask you a bit on capital, right? Because you saw an improvement quarter over quarter. Just wanted to understand, Gonzalo, where is this mostly come from?

Because your pace of growth is still very relevant. And then maybe connecting to that question, it seems that for ROE to improve going forward, you might need to relever your balance sheet. So is, at some point, the discussion on paying more dividends in the cards going forward?

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: Sorry. Pay more dividends in the card. I I couldn’t understand that that last sentence you made.

Brian Flores, Analyst, Citi: I know that with the capital that you have is is a bit more dividends at some point

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: To reduce capital, you mean?

Brian Flores, Analyst, Citi: Yes. Yes, exactly.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: Okay. Okay. Mean, the increase on capital ratio is just the merger of the two banks. I mean, before, as you see, ratio that we have last quarter was just Banco Galicia. We didn’t adjusted we didn’t restated that in the press release because it is a regulatory metric.

We didn’t want to combine something that was not presented for regulatory purposes. So when combined the two banks, the new capital ratio is close to 24%. I think we also mentioned that in prior calls that our estimation for the capital ratio after integration was going to be 24%. GaliciaMass, HSBC, has stronger even stronger capital ratio. So after the merger, that that’s a that’s a new capital ratio.

And the reason of the jump is that before in first quarter, it was just Banco Galicia, the one that you have there in the press release. Talking about the future, I mean, about yes, I mean, dividend policy is something that we always analyze and assess, and we will do that after closer to year end for next year. We believe that there are still a lot of efficiencies that we can make that can benefit our ROE. I mean, even those margins may go down if Argentina stabilize, but NPLs should also stabilize at lower levels. And our expenses, I mean, we still we are seeing that this year, if everything goes as as expected, we may only take from the former HAVC onethree of the cost for next year.

I mean next year, our run rate next year will be using only 30% of what HAVC you took up on a yearly basis. So that’s another thing that is not counted this year because all savings are being done on a monthly basis and most of them may be in the second half of the year. So we need to we want to find the best balance between net income growth and dividends, also considering that we believe Argentina has a lot of potential for lending growth and we want to have the sufficient capital to be able to face that growth. So but that is something that, of course, we will continue looking at and change it if we think that is the best way to proceed.

Brian Flores, Analyst, Citi: You, Gonzalo. That was super helpful. On if I may just very quickly, on this HSBC integration, you mentioned two points of ROE would still be pending. So is this, if I understand it correctly, not considered within the guidance, but could be, let’s say, an upside?

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: No. What what I said is is I again, it’s up to because we don’t know. But if we if if if if we have all the eligible people signing to the program that would generate onetime expense that could be up to two point zero ROE on a negative side because it will be an expense. But again, it’s a one timer, so it’s something that I wouldn’t consider recurring income will be in the reported P and L, but if it happens again, but not will not be recurring for future years, but we will have all the savings for future years. So if it happens, it’s a negative one because it’s an additional expense one time.

Brian Flores, Analyst, Citi: Next

Conference Operator: question from Yuriy Ferdinandis with JPMorgan.

Yuriy Ferdinandis, Analyst, JPMorgan: Thank you, Gonzalo, Pablo, Tien, everybody. I would like to explore a little bit more the asset quality discussion here because given there is very low leverage, right, Argentina is still a growth story, a penetration on credit GDP. It’s caused my attention like the pace of the worsening in the retail and EPO. I know this is industry. It was clear on the explanation like on the disposable income or people getting used to the real rates.

But still, I I I struggle a little bit. So if you can comment a little bit what you saw, like, if there is any kind of income classes that are suffering the most, if you are, you know, I don’t know, shifting the strategy to maybe, I don’t know, ask for more collateral. I know it’s credit card and personal loans, so this can be tricky. But my point of concern here is that we have challenges on the funding side, you mentioned. And on the asset quality side, if you slow down personal loans, everybody will try to move to the commercial side, right?

So you can have like an additional pressure on margins because like commercial is the maybe the only healthy loan. So if you can explain a little bit an outlook, the products, the clients, what you can do to improve NPLs, I think that would be important. And also comment on coverage. The coverage ratio getting below 120. I think it’s overall a low number.

So if you can comment a little bit on how should we think about the NPL coverage ratio going forward? I think it can be important. Okay.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: Mean, yes, talking about NPLs, I mean, the main impact, as as as you said, is is credit cards and personal loans. We have growth or have grew personal loans faster than the market last between March 24 to March 25, faster than the market. And that’s, of course, is the problem with higher NPLs even though credit cards have deteriorated, but but personal loans is worth. After March 25, last March, we started making changes to origination policy that we are still we are still refining. But that that generated the the the pace of of deterioration because, of course, in order to grow and capture market share and capture Argentina opportunity, we we went to segments that a bit riskier than the ones that we were going in the past.

That’s something that we changed. But the mix of the growth was a bit worse than prior years because, you know, there was lack of demand, etcetera. So this year, this twelve months between March 20 ’4 to March 25, we saw a higher composition of the mix of of, let’s say, lower segments or or a bit riskier segments. That’s something that we already changed and we are focusing more in in we already make changes to scorecard and limits in credit cards. But in personal loans, in scorecards are now focusing more in more safer segments, which are still providing healthier volume.

I mean even though we are decelerating the volume, but not a we are finding that with better risks, we still can, you know, disperse loans without going to the riskier segment. So that’s our strategy now. I mean, of course, that we will go to all the segments, but with a different strategy where, you know, start with very, very low disbursements, wait, don’t have customers, new customers that just joined the bank if they are higher risks to get a loan. So let’s have them as clients for a while. So that those are all the strategies that we are putting there.

But again, I mean, we still see our retail banking growing with better segments without sacrificing much the the volume, let’s say. Of course, that commercial side and mainly SMEs is is a focus that we are increasing. Of course, we we we cautious because according depending on how the economy evolves, that would also be another sector that may have problems depending which sector you are. But it’s it’s something that that we started to focus. If Argentina stabilized after the the elections and we start seeing growth, I mean, growth as we have been seeing in the last month, we believe that in the commercial lending and also not corporates, but also coming to medium corporates, there is room for growth and for everyone.

I mean, as you said, lending is has a very low penetration in Argentina. So we believe that we can grow there without a lot of margin compression because there are still a lot of demand nonsatisfied. These couple of months with the rates volatility and and you know, pre elections, it’s it’s kind of something that that we need to put away. But after that, after elections, with markets being leaving aside the political factor, we believe that and that the company will start thinking doing business again and and we can benefit all the financial system can benefit from that, and we may have a space to grow also in the commercial segment without sacrificing much margins. We believe that it’s key for us to stabilize the consumer NPLs, and that’s something that we are focusing on.

And and and and we are seeing the first signs. Of course, we still have a stock because first, it was the personal lending, then we started making it to personal lending, but then credit cards came after. So that’s why we’re seeing a bit of the delay of the stabilization. And in credit card, it was not just the it was not new customer. Was the old customer that starts to to to have problems because of what we mentioned.

So they are the the the the approach was different was, okay, let’s reduce limits and let’s to existing customer where we see more risk. Let’s increase focus in collections and and and, you know, refinancing programs, etcetera, and that’s what we are doing also. So I would say that’s that’s how we see it. And in terms of I mean, we are expecting to end I mean, of reserve coverage, the merger with HCBC also makes some because we need to do some recalibration between the two, you know, situations for the same customers. Sometimes we have shared customers that one bank was performing well and the other has a problem.

So now we need to align that and that has an impact also and impacted also the coverage ratio. We see for year end around the yeah. I would say a bit above one twenty one between 120130%. That’s what we we see for for for year end more or less.

Yuriy Ferdinandis, Analyst, JPMorgan: No. Super clear, Gonzalo. So just making sure I got everything. Worsening, you had, like, higher appetite. You’re growing faster.

Yes. Personal loans, a little bit of new customers that maybe they were riskier. Credit cards, little bit of everything. You are reducing your limits, improving collections, and coverage 120, 130. Just on the credit, at the date we had in other markets was regarding principality, right?

Like, oh, which is the, let’s say, the favorite bank of the clients? And I guess in Argentina, people discuss a lot Mercado Pago, MercadoLibri and like some fintechs. Do you have any perceptions that principality matters at some degree here or not really? It’s really a matter of people having disposable income and maybe higher limits out of the blue and now people behaving are the way you thought they would behave. So just trying to understand the principality, if principality would be a debate also happening here in Argentina.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: I would say that principality, yes, of course, is something that is important. I don’t think that, that impacts NPLs or not or performance. I don’t know if that was for me, they are not related. It’s more on a profitability thing. If you we all want to have the principality of the customer because they do business more business with us.

Regardless their performance. I think that the customer that is not performing is not because he’s not has not the principality with you, it’s just because they are it’s having problems. In Argentina, again, it’s it’s something that that we all look at, but customer get got used to get many banks, you know, in their in their with all the promotions in the past after after, you know, one and discounts where customers used to open a lot of credit cards because they have different discounts in in one on Mondays with one bank, on Tuesday with the other. So they got used to get many banks, many accounts or many credit cards. And now Metallo Fago, it’s it’s also another another competitor there.

So it’s something that is not as easy to to achieve for for banks, but it’s something that for us is very important. So that’s why we call it the everyday banking. We want to be the everyday bank for our customers. So we invest in the app, for example, giving to them all the functionalities for them to do. We, you know, for example, now with dollars, we started paying interest in the dollar deposit accounts.

So they bank in dollars with us. We have the best market share in foreign FX, buying and and sell on dollars for for for people, for consumers now that the foreign FX restrictions got gonna wait for for people. So it’s important for us, but mainly consists from a profitability perspective, and we do a lot of things to get it. In Argentina, it’s something that, from what I said, sometimes it’s not that easy because customers are used to have many banks in their wallet.

Yuriy Ferdinandis, Analyst, JPMorgan: Perfect. That’s very clear. Thank you very much, Gonzalo and Paolo.

: Thank you. Thank you.

Conference Operator: Our next question comes from Pedro Ledoch with Itau BBA.

Pedro Ledoch, Analyst, Itau BBA: Thanks so much guys for the call and taking the question. A very quick follow-up on the NPLs. When you say stabilize, you mean like stabilize, rise less or be flat or maybe falling towards the end of 3Q or 4Q? That’s just a quick follow-up. And then the real question is on financial margins.

We saw it actually increasing a bit Q on Q. And a lot of it is coming from funding cost efficiency that we’re seeing. But I also wanna look ahead a bit. Do you on the NIMs, you know, we’re seeing the government issue high rate bonds. We’re seeing you probably price up a little bit more, and this funding savings seem sustainable.

So I want to maybe get a sense for you if we can expect financial margins now growing in the second half of the year after slightly uptaking in 2Q. Thank you.

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: Yeah. No. It’s thank you. So talking to NPLs, we see a slight increase and stabilize at the end of the on the third quarter, but still a slight increase in the third quarter with with stabilization by the end of the quarter. Talking about margins.

Margins, yeah, we have a healthy second quarter, better funding cost, also better government bonds performance, yielding in the in the in the inflation linked bonds that we have because of of the spike in inflation. I think we have a it was in March, but we got two months lag in the bonds, so that has affected second quarter for for the market. I mean, I would say we will have a third quarter with kind of something an outlier on the year. I think what I tried to explain at the beginning. I mean, all these volatility in interest rates and increasing funding costs will be negative for the system, I would say, in the third quarter.

So we will have a deterioration in the third quarter of the margins, which due to this interest rate volatility and interest rates, increase. I mean, as I said, Tamar rate was 30% and now it’s 60% a month. That increasing our short term funding, which is, as you know, banks in Argentina, the the our funding is is is really short term. Time deposits are thirty days maximum in general in average. And assets now that we are having more lending takes a bit more to reprice.

So for the short term third quarter, we will see a margin deterioration because of the funding cost increase for this volatility, new monetary policy of the government try to tighten and take pesos out of the market by increasing minimal liquidity requirements and all the things that you you know that are happening. So that will be negative for the third quarter. Then we expect, of course, after elections, once political side gets out of the way. We believe that that things should stabilize again and embrace go back to the what we used to have in the second quarter, and we can go back to those margins, the ones that we had in the second quarter. When that will happen is very difficult because, I mean, we are in a middle of volatility.

We, you know, political noise. We all expect that and with very, very high real interest rates. I mean, I would say record interest, real interest rates, meaning about inflation. So that’s something that some point should stabilize. We expect that this to be after the elections.

It’s very difficult to to predict when exactly. But but but with with a with a according to the results of the elections, that should should stabilize. But third quarter will be will be worse than drop forward, I I just explained, then we should come back to second quarter levels. But some at some point in the fourth quarter,

Pablo Firvida, Head of Investor Relations, Grupo Financiero Galicia: I will say, for fourth quarter.

Pedro Ledoch, Analyst, Itau BBA: That’s very clear. Thanks for being so transparent.

Conference Operator: Next question from Alonso Arendtou with BTG.

Alonso Arendtou, Analyst, BTG: Yes. Good morning and thank you for the call. Yes, was going to ask also Maybe if you can provide what is the level of impact you’re seeing in 3Q? Is it 100 basis points, 200 basis points?

I mean, how much of an impact do you think you’re going have because of this higher funding cost? And related to monetary policy, obviously, I think there’s still visibility, but banks have met with the Central Bank. Do you think the Central Bank is receptive maybe to some comments from the banks? Is there some leeway to potentially flexibilize some of these monetary policy to provide a little bit more liquidity to the banks in the short term? No,

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: thank you. Talking about impacts is is really not that easy to calculate because we are having the the the the one day rate is changing every day with big move big swings from one day to the other. So we are trying to capture that, but, yeah, it could be a couple of 100 basis points. But, again, we also don’t doesn’t know exactly how long. No?

So this is August, but still need to see how it evolves. I mean, we always have conversations with Central Bank, and they are very always very receptive of our our comments. And we explain the situation. They understand it. And, I mean, we don’t know what what what what they are going to do with the with the way with with future regulation.

This is what we have, and we will, of course, comply with all regulations. So they know the situation. They understand it, but they also have a superior goal, which is, you know, inflation and and economy stab stabilization. So I can answer what what they’re going to do. What I can say that we explained the situation that, of course, they understand it.

Alonso Arendtou, Analyst, BTG: Okay, great. And maybe a follow-up on asset quality and on cost of risk. I mean, what do you think would be your level of cost of risk? So 3Q should be similar to 2Q? Or do you expect some improvement or not yet until the fourth quarter?

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: No. Would say 3Q is a bit higher than second Q, sorry. In in total total portfolio, I would say a bit higher than than second q and then stabilizing closer, I would say, last four today is 4.4. So we could say that’s NPLs. Yeah.

What he said? Cost of risk. Cost of risk. Sorry. Cost of risk, we are in the in the range of of 88%.

Yeah. We believe that for the second half, slightly higher than than we are seeing now. Not dramatically higher, slightly higher.

Alonso Arendtou, Analyst, BTG: Next

Conference Operator: question from Marina Varadji with Ninefin. So I wanted to go back to NPLs. You provided some color on the consumer portfolio. But I was wondering about the corporate segment. Do you see any deterioration there?

And also a second question, what do you think will be the level by year end?

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: I mean, in the corporate segment, we are not seeing really, really big changes. I mean, there is I mean, we are coming we are at point 7% today, and we see some somewhere same amount. But, again, it is slightly up between 0.7% to 1%, but really at very low levels. SMEs also, I mean, with the lending growth, some slight increase, but nothing nothing I mean, normal behavior due to the increase in lending, but not a a systemic problem or that’s what we are seeing in the in the consumer group. And the other question was?

Whether

Conference Operator: you see the level of NPLs by the end of the year?

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: The level of NPLs, closer to total book, closer to 5%.

Conference Operator: Next question from George Birch with Argentinian Advisors.

: A very quick one. Just again on the NPLs. I think you mentioned that there was a trend in terms of NPL formation from new customers. Can you just confirm that? And also in terms of when the when when the bulk of these NPLs were originated, are these mostly loans that were originated last year when you had that above average loans growth?

Or or or are we looking at maturities dating back to before then? Roughly, if you could describe the split, that would be very helpful. I

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: mean, couldn’t hear very well, so I I will answer what what I heard, and then, otherwise, you you can repeat it. I would say that for the personal lending, the the the the worst bike came between March 24 to March 25, which is where we grew we grew faster. And then we started taking actions. On the credit card portfolio, which is not new customer, that was existing customer that started to have performance issues, We start seeing that more first quarter of this year and second quarter, but those are more, again, existing customer that start struggling because of, you know, less disposable income, etcetera. So it is different.

The answer is talking about if we talk about personal loans and and credit cards. And, yeah, I don’t know if there was more question, but I couldn’t hear that.

: That’s great. Thank you. Thank you.

Conference Operator: Next question from Santiago Petri with Franklin Templeton.

Alonso Arendtou, Analyst, BTG: I just want to understand the way of reasoning here because it gives me the impression from your comments that you expect that the volatility in rates is going to diminish once the uncertainty of elections is over. However, I have the impression that the volatility in rates was well before of the political developments and the political events. So I just want to get a clarification if you are allowed to give so on these developments. Well,

Gonzalo Fernandez Cabaro, CFO, Grupo Financiero Galicia: I mean, this, of course, we are doing futurology. So if that word exists, so it’s, know, it’s it’s just it’s just an opinion. I mean, I would say that, yeah, I understand that this started a bit before, but in an elections in an election year. I mean, what we believe is is that this kind of positive real interest rates, meaning above inflation, very, very high compared with the inflation we have, cannot stay here from much long because it will start producing impacts in the economy. So meaning companies or borrowers, etcetera.

So and we so our expectation, again, talking about our research department is more or less after elections. If the elections is what market expects, that could help stabilizing the the market and also, you know, reduce it to go back to to trust more in the peso, etcetera. Because it means that that the the government will be able to make all the changes that that they want. I mean, that that that’s what we expect. But, again, this is I mean, this can change from one to the other, and it’s it’s a it’s something it’s a the base case we have built with our research research department, but but it’s it’s it’s not nothing that we can can assure.

Sorry, Juan.

Pablo Firvida, Head of Investor Relations, Grupo Financiero Galicia: Santino, I would like to add that once the the both elections are are over, the the government, meaning the Ministry of Economy and the Central Bank, will be more perhaps receptive to change regulations. Because right now, they they want to get to the elections with the stability in terms of inflation, FX, volatility. So there could be some changes after that.

Alonso Arendtou, Analyst, BTG: Okay. Thanks. I understand. Thanks.

Conference Operator: Thank you. The question and answer section is over. We would like to hand the floor back to Mr. Pablo Firvida for the company’s final remarks.

Pablo Firvida, Head of Investor Relations, Grupo Financiero Galicia: Okay. Thank you. Thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning.

Bye bye. Bye bye.

Conference Operator: Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.

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