Grupo Financiero Galicia S.A. Q2 FY2025 earnings call

Macroeconomic Environment

• Argentina's economic activity saw a 6.4% year-over-year increase in June 2025, with a 6.2% expansion in the first half of 2025. Inflation had a 6% accumulation in the second quarter of 2025 and 17.3% year-to-date by July. The exchange rate averaged ARS 1,181 per dollar in June 2025, a 23.5% devaluation year-over-year. Interest rates changed from Central Bank-set to market-determined.

Merger with Galicia Más

• Successfully unified banking, mutual fund, and insurance units. Experienced a 2.5% growth in market share for loans and deposits, with a smooth transition for clients.

Financial Results

• Net income was impacted by higher cost of risk from loan book growth and nonperforming loans in retail. Operating income decreased 67% due to 36% lower net interest income, 37% lower net results from financial instruments, and 192% higher loan loss provisions, partially offset by 30% growth in net fee income. Liquidity and solvency metrics remained healthy despite challenges.

Net income for the second quarter of 2025 amounted to ARS 173 billion, which was 70% lower than the year-ago quarter. Profits were derived from Banco Galicia (ARS 98 billion), Naranja X (ARS 32 billion), Galicia Asset Management (ARS 27 billion), and Galicia Seguros (ARS 13 billion). Average interest-earning assets reached ARS 17.3 trillion, 38% higher than the same quarter in 2024, driven by a 117% increase in peso-denominated loan portfolio and 262% higher dollar-denominated loan portfolio. Interest-bearing liabilities increased 74% from June 2024 to ARS 14.8 trillion. Deposits stood at ARS 19.9 trillion, 72% higher than the previous year, with significant growth in dollar savings accounts, peso time deposits, and checking accounts. The bank's market share of loans to the private sector was 14.5% and deposits was 16%. Nonperforming loans to total financing ended the quarter at 4.4%, a 240 basis points deterioration from the prior year, with coverage by allowances at 117.9%. Total regulatory capital ratio was 23.7% and Tier 1 ratio was 23.2%, both lower than the prior year.

ROE Outlook

• Expected ROE range of 9% to 11% for 2025.

Loan and Deposit Growth

• Loan growth expected around 30%-40% due to market volatility and strategy changes in consumer lending; deposit growth expected around 30%-35%.

Voluntary Redundancy Program

• Potential one-time expenses from the program could impact ROE by up to 2 points if all eligible sign up, though it's a one-time effect.

• Macroeconomic volatility affecting interest rates, funding costs, and asset quality.
• Uncertainty in regulatory changes and political developments impacting the financial environment.
• Continued deterioration in asset quality if consumer lending trends don't stabilize.

Q: Follow-up on guidance, asking if loan growth and deposits adjustments were made to the previously guided ranges.

A: Loan growth is now closer to 40% due to market volatility and strategy changes, deposits around 30%-35%.

Q: On capital and dividends, where capital increase came from and if dividends might increase.

A: Capital increase from merger of banks; dividend policy under review, considering efficiencies and future lending potential.

Q: On asset quality, NPLs in corporate segment and coverage ratio.

A: Corporate NPLs are low, coverage ratio expected to be between 120%-130% by year-end.

Q: Impact of 3Q on margins and Central Bank's receptiveness.

A: 3Q margin deterioration due to funding cost increase; Central Bank is receptive but focused on inflation stabilization.

Q: NPLs and cost of risk.

A: Cost of risk slightly higher in 3Q, with stabilization expected later.

Q: Rate volatility post-elections.

A: Expect volatility to diminish post-elections but uncertainty remains.