Grupo Financiero Galicia Management Discusses Q2 2012 Results - Earnings Call Transcript

Grupo Financiero Galicia S.A. (GGAL)

Q2 2012 Earnings Call

August 15, 2012 11:00 AM ET

Executives

Pablo Firvida – Head, IR

Analysts

Nicolas Chialva – Itaú BBA

Phillip Rowe – GWI Asset Management

Federico Rey – Raymond James

Presentation

Operator

Welcome to the Grupo Financiero Galicia Second Quarter Earnings Release Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Pablo Firvida. Please go ahead, sir.

Pablo Firvida

Thank you. Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia second quarter fiscal year 2012 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 US Federal Securities laws. These forward looking statements are subject to risk and uncertainty that could cause actual results to differ materially from those expressed in the forward looking statements.

During the second quarter of 2012, international and financial markets showed a moderate rise in volatility returning to levels seen in the fourth quarter of 2011, mainly due to remaining doubts regarding European Fiscal and financial situation. Global economic activity decelerated its pace of growth with some visions as Europe experiencing recession.

Under the influence of this international scenario, the Argentine economy weakened. Private estimates of economic activity point to a 2% annual drop in the second quarter compared with a 3% year-over-year expansion in the first quarter.

During the quarter, national fiscal revenues increased 22% year-over-year, compared to the 29% recorded in the first quarter, while growth of primary expenditures decelerated from 31% in the first quarter to 27% year-over-year in the second quarter. The primary surplus for the quarter amounted to 2.7 billion pesos, 3.3 billion pesos lower than a year before and after interest payments of 8.3 billion pesos, the global balance was 5.5 billion pesos reported.

Consumer prices slightly increased its growth pace expanding 2.5% in the quarter, as measured by the official index and 6% according to private estimates. While annual inflation rates as of the end of June reached 9.9% and 22.1% respectively.

On the monetary front, the portfolio of realization process continued diminishing in the second quarter due to increasing controls over dollar purchases. We estimate that outflows were around $2.4 billion compared to $2.7 billion for the prior quarter.

The Argentine Central Bank expanded the monetary base by 23.5 billion pesos in the quarter and exchange rate increased from 4.38 pesos to 4.53 pesos per dollar during the quarter representing a depreciation of 3.4%.

Average interest rates paid by private banks decreased during the quarter. In June, the average rate on pesos-denominated time deposits for up to 59 days decreased to 12% from 12.9% in March 2012, while the average rate on overdraft increased 357 basis points to 20.5%.

Private sector deposits at the end of June amounted to 365 billion pesos with a 5.4% growth during the quarter, and a 23.1% inter-annual increase. Peso-denominated deposits increased around 10%, while dollar denominated deposits decreased nearly 22%. Transactional deposits grew 8.6%, and time deposits increased 1.1%.

At the end of the quarter, total loans for private sector amounted to 319 billion pesos, recording a 6.4% increase from March 2012 and a 35.9% inter-annual increase.

Turning now to Grupo Financiero Galicia, net income for the quarter amounted to 339.1 million pesos, 36.4% higher year-over-year and 20.4% quarter-over-quarterly. This result was mainly due to profits from its interest in Banco Galicia for 312.5 million pesos and Sudamericana Holding for 22.6 million pesos. Banco Galicia’s net income for the quarter amounted 329.2 million pesos compared to a 247.7 million profit year-over-year. Annualized return on assets and on equity for the bank reached 2.7% and 32.6% respectively.

The bank’s credit exposure to private sector reached 41 billion pesos up 31% during the last 12 months and deposits reached 33 billion pesos up 20% during the same period. At the end of the quarter the bank estimated market shares of both private sector loans and deposits were 8.53% and 8.70% respectively.

As regards to asset quality, the NPL ratio a 36 basis points increase year-over-year ending the quarter at 3.42% and its coverage with allowances for loan losses decreased from 141% to 128% in the same period. Although the retail loan book is showing signs of deterioration, NPL’s coverage are healthy regarding historical terms. It’s worth mentioning that due to our consumer finance subsidiaries, the consolidate asset quality figures are different from the financial (inaudible). But if you can see that the bank is standing alone, the asset quality metrics are comparable to our peer groups.

The net financial income increased 55% year-over-year due to higher volume together with an increase in the financial margin. The average interest earning assets grew by 11.2 billion pesos year-over-year and its yield increased 303 basis points.

Interest bearing liabilities increased 7.6 billion pesos during the same period while its costs increased 177 basis points. Net income from services increased 29% year-over-year explained by the growth in fees related to deposit accounts to credit cards and to insurance.

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