Good morning everyone and thank you for joining us today for BBVA Argentina's second quarter 2024 results conference call. During the second quarter of 2024, inflation continued to decline, reinforcing expectations that this trend will further consolidate.

This environment should support a recovery in credit and consumption together with an improvement in real incomes. Economic activity, while showing differences across sectors, is displaying signs of overall growth.

In addition, announcements and approvals of projects under the RIGI continued, totaling more than $15 billion during the quarter, with the potential to increase capital inflows and strengthen the trade balance. The treasury also made progress in improving its debt maturity profile.

It extended a significant portion of local currency maturities to 2028 and 2029, and in foreign currency lengthened the maturities of repo agreements with banks and the swap agreement with China, while also securing financing backed by the IFI guarantees. These developments, together with reserve purchases of more than $13 billion, are helping to reduce uncertainty and strengthen the macroeconomic outlook.

The second quarter showed early signs of a recovery in lending activity, gradually reflecting the effects of the decline in interest rates and more favorable seasonality, although still affected by elevated delinquency levels. Moving into our financial highlights for the quarter, BBVA Argentina posted an inflation-adjusted net income of 131.6 billion pesos for the second quarter of 2024.

This represents a 44.6% increase quarter-over-quarter, driven by the operating income remaining relatively stable in a lower inflation environment. This bottom-line expansion boosted our quarterly ROE to 12.2%.

In spite of net interest income being affected by lower rates on the asset side, our reported NIM remained stable quarter-over-quarter and year-over-year. NIM net of monetary position loss improved from 14% to 14.8 7%.

Regarding efficiency, our quarterly efficiency ratio stood at 45% with personal benefits and administrative expenses reflecting the ongoing management of our corporate structure, and also some costs declining related to lagging activity. Let's look at the dynamics of our balance sheet and credit portfolio.

Total financing to the private sector closed the quarter at 17.1 trillion pesos. While local currency loans increased 2%, our foreign currency private loans grew by 2.5% sequentially, equivalent to a 2% increase in hard currency.

Mortgage lending continues to gain momentum. Furthermore, we are successfully capturing business mainly driven by the commercial segment and foreign currency loans.

Our consolidated loan market share stood at 12%, signaling a total gain of 15 basis points over the last 12 months. On the funding side, total deposits reached 19.2 trillion pesos.

Private deposit market share remained flat at 9.91%, but up 26 basis points year-over-year. With regard to asset quality, although nonperforming loan levels remain elevated, we can identify signs of improvement in certain indicators, such as early-stage delinquencies.

BBVA's NPL ratio stood at 6.09%, up 49 basis points during the quarter. The financial system ratio was 7.22% by the end of June, increasing 54 basis points since March.

BBVA's quarterly cost of risk reached 7.13%, broadly in line with the first quarter figure when adjusted for nonrecurring effects. Looking at solvency and liquidity, our liquidity ratio closed at a very comfortable 45.5%.

More importantly, our capital position remains robust with a regulatory capital ratio of 18.8%, representing a 128.7% excess over minimum regulatory requirements. In conclusion, as we head into the second half of 2024, BBVA Argentina is well positioned, supported by robust capital levels, strong liquidity, and healthy operating results.

We remain fully equipped to lead the market and support credit supply as the financial system in Argentina continues to normalize. Thank you for your time and for your continued support.

I would like now to turn the call over to Carmen Morillo, our CFO, for some closing remarks.

Thank you, Belén. Thank you and good morning, everyone.

Before we move to to the Q&A, I would like to spend a few minutes sharing our view for the second half of the year, both for Argentina and for BBVA. Starting with the the macro, our view So in our view, it remains constructive.

The economy continues to normalize, fiscal discipline remains an important anchor, inflation is coming down, the external accounts are improving, and the financial system is gradually converging after many years of very low financial intermediation. This process will be not linear, and there are still important difference across across sectors.

We believe the overall direction remains positive. We expect inflation to end 2024 at around 29%, with monthly inflation moving towards 1.5 to 2% range.

Beyond these numbers, we remain confident in Argentina medium- and long-term potential. Energy, mining, and agriculture are already making a growing contribution to exports and investments.

The large projects under the RIGI framework should further increase Argentina's productive and export capacity, and create opportunities across the value chains. Here, being part of a global bank is an important competitive advantage for us.

We can combine our international capabilities with our strong local presence to support large investment projects and the companies around them. Turning to banking activity, Argentina still has a very low credit penetration, as you all know.

This gives the financial system significant room to grow as inflation and interest rates normalize and real income recover. After a relatively soft start of the year, lending activity showed some improvement in the second quarter, and we expect activity to continue improving gradually during the second half.

For 2024, we expect our loan book to grow around 10% in real terms. We see opportunities across the businesses: in retail, mainly in secured lending and and customers where we have strong visibility on income; and in companies and SMEs, particularly in the more dynamic sectors of the economy.

We will pursue this growth with discipline, maintaining our focus on credit quality and risk-adjusted returns. On funding, we are on a very comfortable position.

We have a strong liquidity, and we don't we do not see funding as a constraint to growth. Rather than targeting an specific level for deposit growth, we will manage deposits according to our funding needs and the opportunities we see in the asset side.

On margins, we expect some moderate pressure on our activity NIM in pesos as interest rates decline. However, at the P&L level, this should be partially offset by the positive impact of lower inflation.

The currency mix will also matter, of course. If dollar-denominated business gain gains weight in our balance sheet, consolidated margins could be somewhat lower, although we don't expect this effect to be significant, at least in the short term.

On fees, the underlying trend remains very positive. The quarter-over-quarter comparison is affected by by some one-offs recorded in the first quarter, but excluding this effects, fee income continues to show a strong growth.

Net fees are up around 35% year-over-year, reflecting the good progress we are making across our main fee-generating business. We expect fees to remain an important contributor to revenue growth going forward.

Moving to asset quality, the recent indicators are encouraging. Our NPL ratio ended June at around 6%, and cost of risk was was 7.1.

These figures still reflect reflected the deterioration of previous quarters, while some of the more recent indicators are already moving in a better direction. Early arrears are improving, and recent vintages are performing better after the changes we made to underwriting and origination.

Based on what we see today, we expect NPLs to stabilize, and then gradually improve during the second half, ending the year at around 5.5%. For full year 2024, we expect cost of risk to be around 6.5.

Our coverage ratio ended the quarter at around 80%. When looking at this ratio, it is important to consider our historical recovery experience, which is around 25% of loans in arrears being recovered before write-offs.

In this context, we we consider the current level of coverage adequate. We expect 80% level to be the bottom for this ratio and from here to gradually rebuild coverage as asset quality improves.

Overall, we remain prudent on the timing, but we are increasingly confident about the direction of the asset quality. On efficiency, the progress is already clear.

Our quarterly efficiency ratio improved to 45% in the second quarter, and we remain very focused on cost discipline and operating leverage. For the full year, we expect the efficiency ratio to end below 45%.

We will continue to be ambitious, quarter after quarter, as volume recovers. Finally, let's talk about profitability.

Our quarterly ROE improved to 12.2% in the second second quarter from 8.3% in the first one. For the full year, we continue to expect a real ROE in in the low-teens level, consistent with the guidance we have been providing in previous quarters.

Going forward, higher higher business volumes, positive contribution from fees, continued efficiency improvements, and a gradual normalization of credit cost should support profitability. There may still be volatility between quarters, but we believe the underlying trend is very positive.

To summarize, we remain constructive on Argentina and on BBVA's outlook for the second half. We expect this real loan around 10%.

On funding, our strong liquidity gives us flexibility to manage deposits according to the growth opportunities we see. We expect moderate moderate pressure on activity margins, partially compensated at a P&L level by lower inflation, while fees should continue to provide a positive contribution to revenues.

Asset quality's indicators are starting to move in the right direction. We expect to end the year with an efficiency ratio below 45%, and we continue to guide for the real ROE in low-teens.

We enter this new this phase with a strong position with a CET1 ratio of 18.8% and a strong liquidity. We have the capability to capture growth opportunities while maintaining a prudent approach to risk.

We believe BBVA is well-positioned for the for the next phase of Argentina's economic cycle. With that with that, we can move to your questions.

Happy to to hear.

Hi, team. Thank you for the opportunity to to ask questions.

I I have one on on asset quality. Carmen, I know the bank is already focused in in corporate loans, and I wanted to just get your thoughts on, what do you think explains this deterioration?

Do you think it's the uneven distribution of the recovery in the economy? Or or what do you think explains this this cause?

Because in in on paper, the thing we can see is you have been already cautious in your allocation in the loan book. Just wanted to check with you, looking backwards, what do you think explains this deterioration in asset quality?

Then in in my second question, just a follow-up, you mentioned for the end of the year maybe cost of risk around 6.5. Just wanted to check with you if that if directionally the improvements should be sequential, that means lower from the 7.1, and then we go anywhere between that and 6.5?

Or do you think the third quarter still is pressure and then we drop more sharply in the fourth quarter? Thank you.

Hi, Brian. Thank you for your questions.

The the first question at the beginning, you mentioned the the corporate. I I I I don't really get why.

Corporate, in the corporate segment we see zero deterioration, we are expecting to grow there as much as we we can, depending on the on the demand on on credit. In in that segment and and also in in companies, small to to medium companies, we we are outperforming the market and we are comfortable with that position.

Going to the retail side, what we've been doing is, as be more focused on recoveries on one side, on origination on the other side. What what we see, as I mentioned before, is that new vintages are performing better.

We so the the quality of the of the assets is still not so good as we want to see in personal loans and and credit cards. These are the two portfolios where we are more cautious on on growing and and we and we will wait a bit more to see the the better performance on on that.

Of course, when when you split between, for example, payrolls and clients, things are much better there than nonclients or nonpayroll clients. As I mentioned, we we will be conscious cautious on on those segments.

Then related to the trend for this year, what we see is that coming from from actual levels, for the third quarter we see a a slight better performance, and then a better one in the fourth one. We what we see is like the peak NPL and and also cost of risk in the second quarter, and then a better a slightly better performance in the third quarter and a better one in the in the in the last quarter to get this average cost of risk I was mentioning.

No, super clear. Then if I may, just a quick follow-up.

You mentioned the levels of coverage that will be recovered gradually. Obviously, in the last years, we have seen the the decrease for I would say from very extraordinary high levels, but just wanted to check with you if I don't know if you have a target in mind or any level that what you will feel more comfortable with maybe by the end of '27.

Is it I don't know, above 100%? 100 and something?

Or do you think it's more of a stable around the 100 level? Any Any I think idea here would be very helpful.

Thank you.

Okay. As I mentioned, we expect this 80% level to be the bottom of the ratio, and from here on to gradually rebuild the coverage ratio as asset quality improves.

I don't know if 100% is the the the level for next quarter, but but we should see better levels in in the following quarters.

Thank you, Carmen and team.

Thank you.

Hi, everyone. Um thanks for taking my questions.

I have a quick follow-up on asset quality. Um I was wondering if you could somehow share the magnitude of the improvement in the early vintages that you're seeing.

Also um I don't know if I'm getting ahead, but if you could if you already have some views for 2025 on loan growth, and maybe um an early ROE expectation would also be great. Thank you.

Magnitude of recovery in the early vintages.

Sorry, Yuri. Thank you for your question.

The first one was so it's related to the the vintages?

The the It was related to um how if you could share the magnitude of the improvement in the asset quality that you mentioned in the early in the new vintages.

As I was mentioning, you have to split payroll, nonpayroll and and and different products. We are So the the signal the signals we are having are maybe too early to to um to get to a conclusion, but what we see is that from I don't know, from levels in credit cards of around 6% a year ago, we are near 2 2% to 2.2% this this year.

It's so it's difficult to to get a an exact figure there, but what I can say is that we see a so a constant a constant better figure on a month monthly base in these two portfolios. Maybe it's useful to to know that in personal loans and and also in credit cards, we are already in the payroll portfolio in in levels similar to December 2023.

There we we are already comfortable with what with with what we see. These signals are the ones we were waiting for to to start growing, as I mentioned, in in clients that we know their income and and and moreover that that we have this payroll is also really important for for us.

Yeah. Thank you.

Um do you already have any expectations for 2025?

Maybe it's a little bit soon to to answer that question, but what we expect for the system is a real growth around 10 to 15%, and we will be above that. We want to to outperform the market.

Something above this level for sure. Maybe next quarter, we can have some more color on this.

Super helpful. Thank you so much.

Hi, everyone. Thanks for taking my questions.

I have two on my side as well. The first one, I would like to to ask a color on the portfolio mix that you expect for the for the coming quarters.

Mortgage loans was a very positive highlight in the second quarter and more recently, the government announced a new a new funding program backed by FGS resources. I would like to know the appetite to to grow in retail mortgage, and how relevant this this new program from the government could be to BBVA.

This is the first question. The second one is regarding the the NIMs.

You mentioned that some pressure is expected as rates and inflation continues to decline. Could you provide some color on what levels could we see for the for the coming quarters and for 2024?

That's all from my side. Thank you.

Hi, Eduardo. This is Diego.

On your first question regarding the the mix of portfolio, we've been growing in the last quarters more on commercials, that represents approximately 57% of our portfolio. That growth has somewhat stabilized as this kind of loans has already have already stalled and not and then are not growing so much.

For the coming quarters, we are seeing that the retail portfolio has touched some some floor on on growth. We are seeing some recovery, especially, as you mentioned, in in mortgages, probably also on on car loans.

Gradually, also consumer and and credit cards, as as Carmen said, well, we are seeing some signs of improvement on on credit quality. It could be possible to start growing a little in the coming quarters.

Anyway, mortgages and and pledges will will gain traction more with more speed and and and will represent a a bigger share of that retail portfolio. Nowadays, both of them, if you take mortgages and and car loans, they represent around 27% of that retail portfolio.

Probably that that percentage should grow in in the coming quarters. We will also make efforts to grow in commercial.

As Carmen said, we are seeing that credit quality on those segments is good. Of course, we have not seen too much demand on the first part of the year, but we think that seasonally that first part of the year is the is the is the worst.

Rates have fallen a lot during these past months, we should expect some some some pickup in activity there, too. We are focused, we are we we have been telling the market that we are focused on on companies on on mid-sized companies, especially.

We will be there. Regarding currencies, we we we have been growing in the past a little more in the dollar activity.

Probably that could be the trend in the future, but at very slower pace. No, we we are not seeing that that mix of dollar-peso will change dramatically in the in the coming quarters.

Regarding this mortgages, the bank has been active in the past quarters. We have been growing, we have been selling approximately 20% of the new origination in the past four, five months.

We intend to keep that that track for for the coming months. We see with good eyes this new program that the government has implemented, because, of course, in Argentina there are no institutional investors, and and having the the ANSES doing that job, I think it's good for the market.

We will participate in the in

the program. Your second question

regarding NIMs, well, NIMs have been performing well in the past quarters, especially the measure that we like to present, that is the NIM in real terms. We take the the cost of inflation from from from the the interest margin, and that measure has gone up 70 basis points in the last quarter.

Probably this is the higher point of the year. Probably net interest income should stabilize in the coming quarters, and as loan portfolio starts growing, we should see NIMs deteriorating a little.

In historical NIMs should fall around, we think, 200 basis points by year-end, but that will be partially offset by the fall in inflation. The real NIM should fall around 100 or 125 basis points.

This is not this is not a huge problem for us, of course. This is the the trend that everyone is expecting in Argentina if things keep normalizing and inflation keeps going down along with rates.

Super clear. Thank you.

Hey, guys. Hi, team.

Thank you for for the question. Just Just two questions.

The first, I think, it's already kind of sort of been answered. Regarding, the the early signs that you've seen, the signs you've seen in early NPLs.

I know that, you're saying that the new vintages are behaving well. I don't know if if we, as investors, can can can we track, Stage Stage 2 or Stage 1 loans in order to to um to also, kind of be on on on on on on tracking or measuring well that behavior?

I don't know if if that is accurate to to be following. Since, early early, the the vintages is not something that we can see.

Also because we know that, in in Argentina, the the loan book is, very short, uh short duration as as of now, right? You correct me if I'm wrong, but I don't know if, Stage 2 can be, also like a good measure that we can follow in order to to try and anticipate to to um to an improvement in asset quality.

The other question was um yeah, was about regulation. We also uh we also saw that the government announced that uh it's going to let banks to uh to loan uh USD to to grant USD loans uh up to 15% of deposits, regardless of of the client being a a a a USD generator or not, right?

I I want to to to check on you guys um your views on that on that on that policy, if this is going to have if this is going to have a huge an impact or not. That would be great to have your color on that as well.

Thank you.

Okay. Thank you.

Yeah. You're right.

If we if we follow stages, of course, they will give us also some color on on the better performance of the of the portfolio. It is that way.

When we take a look to individual to to individuals, to retail, we we see this better performance along the the months this year, and and we we hope to see it by the end of the year at a at a at a better pace. Yes, the answer is yes.

I know you don't have enough information to see vintages, and and it could be a good indicator for you, I I agree. Related to to dollar.

Diego, do you want to to to take that one?

Yes. Hello, Mario.

Regarding the your other question, well, we we welcome that that measure by the government, but in fact, we already had the capacity to to lend to to companies that do not originate dollars because we have some bond issuances in the market. We we had that capability, even if we do not use it broadly.

We we we look case by case. There are a few companies that we have already lent, but we do not think that we will make this massive.

We we are aware of of the risks. On the other side, we have a very good demand on of of exporters or of projects.

Our liquidity ratio in in in foreign currency is where we want it to be. Of course, if deposits and and and funding in general terms keeps going up, we will keep lending.

It's like we we we didn't need this measure too much in order to keep growing our our portfolio. Of course, it is welcome because it it it allows us more flexibility if we need it.

Perfect. Perfect, both.

Just to check on on on what you mentioned about uh guidance. It was loan growth close to 10%, and and cost of risk at 6.5%, and ROE, I think I didn't catch that, if if there was a correction on that.

Yes. Low teens.

Low teens on ROE.

Yeah.

Then

loans, around 10%.

That

that's right. The other one, I didn't get it.

Do you want to check? Ah, the

cost

cost cost of risk at 6.5? Ah, cost of risk, yeah.

That that's right. 6.5,

6 and 1/2 for the for the full year.

Yeah.

Okay. Thank you.

Thank you, guys.

You're welcome.

Congratulations on the results. I have uh two questions here.

The first one is, you can provide a deposit guidance uh growth for the full year in 2024. The second one is that we saw the bond portfolio and the public exposure the public sector exposure growing this quarter.

I I was wondering if you think it can continue growing the following quarters. Thanks.

Hi, Lisandro.

The first one, if I if I didn't get it wrong, it's related to guidance deposit growth. As I said before, we

Yes.

Okay. On funding, we're we're very comfortable with with our position.

We think it so we have enough liquidity to to keep growing and it will depend the so the opportuni- the opportunities we see on the asset side, and according to that, we will be growing in in deposits. We don't see any restrain there.

To to give you a a figure, maybe so it will depend on on also on the on the system, but we we could be around 5 to 10%, something similar to that. As I mentioned, if we need more liquidity because the activity grows faster, then we we won't have any any any problem there, so.

Yes, Lisandro, as we have been growing in market share in deposits. We have grown around 300 basis points through the last two or three years, but then we we stopped because, of course, credits are not growing that fast by the moment.

When we need to to resume that growth, we will. Regarding your second question, it's true that public sector portfolio has grown in the second quarter after having decreased in the previous two years.

I think it's temporary. The explanation is just the the the that loans didn't traction during this first part of the year.

Besides, we saw some good opportunities in in building a a value bond portfolio. We prefer floating rate adjustment, we started with TAMAR bonds, and then of course we switched to to this dual bonds that pay the most between inflation and and and TAMAR rate.

The at least two-thirds of our portfolio consist of of that kind of bonds, which we, as I said before, we we think that that provide value for our for our NII in the coming one, two, until up to three years. We are we are comfortable with that position, and of course we keep some part of the portfolio short-term to attend liquidity situations, that's as a prudency measure.

Perfect. Thank you.