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01/11 03:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presented mixed signals. While there are positive elements such as expected loan growth and a recovery in margins, concerns remain about high NPLs and capital ratio declines. The Q&A revealed management's confidence in capital levels and a focus on deposit growth. However, uncertainties in asset quality and vague responses on liquidity and dollar lending temper optimism. The strategic plan suggests temporary challenges with a more positive outlook for 2026, but current financial metrics and guidance do not strongly indicate a significant stock price movement in the short term.
Argentine economy growth (September 2025) 5% year-over-year increase. Reasons: Economic expansion driven by various factors, reaching 5.2% year-to-date.
Primary surplus (Q3 2025) 0.5% of GDP. Reasons: Revenues increased by 32.8% year-over-year, while primary spending rose 30.6%.
Overall surplus (Q3 2025) 0.1% of GDP. Reasons: Similar revenue and spending dynamics as primary surplus.
National consumer price index (Q3 2025) 6% increase during the quarter, 24.8% year-to-date as of October, and 31.3% in the last 12 months. Reasons: Inflationary pressures, though headline inflation was below 2% for 4 months before rising slightly in September and October.
Exchange rate (September 2025) ARS 1,400 per dollar, a 15.6% devaluation compared to June 2025. Reasons: High volatility and Central Bank interventions.
Peso-denominated interest rates (September 2025) 48.7%, up 16.5 percentage points from June 2025. Reasons: Increased uncertainty and liquidity shifts.
Private sector deposits in pesos (September 2025) ARS 94.1 trillion, 5.6% quarterly increase, 53% year-over-year increase. Reasons: Growth in time deposits and transactional deposits.
Private sector dollar-denominated deposits (September 2025) $32.6 billion, 7.2% quarterly increase, 38.9% year-over-year increase. Reasons: Increased dollar-denominated savings.
Peso-denominated loans to private sector (September 2025) ARS 79.3 trillion, 9.7% quarterly increase, 105.4% year-over-year increase. Reasons: Growth in loan book.
Dollar-denominated loans to private sector (September 2025) $18.3 billion, 15.8% quarterly growth, 153.4% annual increase. Reasons: Increased demand for dollar-denominated loans.
Grupo Financiero Galicia net loss (Q3 2025) ARS 87.7 billion. Reasons: Losses from Banco Galicia (ARS 104 billion), Naranja X (ARS 6 billion), and Galicia Seguros (ARS 12 billion), partially offset by profits from Galicia Asset Management (ARS 25 billion). Extraordinary restructuring expenses of ARS 105.3 billion net of income tax also contributed.
Net operating income (Q3 2025) Decreased 23%. Reasons: Decline in net interest income and financial instrument results, partially offset by growth in net fee income and FX quotation differences.
Net interest income (Q3 2025) Decreased 10%. Reasons: Higher interest expenses due to increased rates on time deposits, partially offset by higher interest income from loans.
Loan loss provisions (Q3 2025) Increased 26%. Reasons: Growth in financing portfolio and increased delinquency in personal loans and credit card financing.
Personnel expenses (Q3 2025) 83% higher than Q2 2025. Reasons: Voluntary retirement program linked to restructuring plan after HSBC acquisition.
Administrative expenses (Q3 2025) 11% lower than Q2 2025. Reasons: Decrease in maintenance, repair, and IT expenses.
Nonperforming loans ratio (Q3 2025) 5.8%, up 140 basis points from Q2 2025. Reasons: Deterioration in personal loans and credit card financing portfolios.
Regulatory capital ratio (September 2025) 22.1%, down 160 basis points from Q2 2025. Reasons: Changes in capital structure and regulatory adjustments.
Restructuring and cost reduction: Grupo Financiero Galicia incurred extraordinary restructuring expenses of ARS 105.3 billion due to the merger with HSBC. This included a voluntary retirement program, resulting in a headcount reduction of 2,000 employees for the year, which is expected to generate cost reductions in 2026.
Asset quality and loan performance: Nonperforming loans (NPLs) increased to 5.8% of total financing, up from 4.4% in the previous quarter, primarily in personal loans and credit card financing. Coverage with allowances decreased to 105% from 117.9%.
Margins and profitability: Net interest income decreased by 10% due to higher interest expenses, while net fee income grew by 9%. The bank expects margins to improve in Q4 2025 and 2026, with an ROE target of 11%-12% for 2026.
Liquidity and solvency: The bank maintained healthy liquidity and solvency metrics, with a total regulatory capital ratio of 22.1% and Tier 1 ratio of 21.8%.
Merger with HSBC: The merger with HSBC Argentina resulted in significant restructuring costs and operational changes, including a reduction in headcount and integration of acquired business operations.
Macroeconomic Volatility: High volatility in the months leading up to midterm elections, with exchange rate pressures and Central Bank interventions, poses risks to financial stability.
Inflation and Interest Rates: Headline inflation increased to 2.3% in October, with peso-denominated interest rates experiencing sharp swings, reflecting increased uncertainty and liquidity shifts.
Loan Portfolio Quality: Nonperforming loans (NPLs) increased to 5.8%, with deterioration in personal loans and credit card financing portfolios, impacting asset quality.
Restructuring Costs: Extraordinary restructuring expenses associated with the merger with HSBC amounted to ARS 105.3 billion, significantly affecting profitability.
Regulatory and Reserve Requirements: Increased regulatory reserve requirements and high interest rates negatively impacted financial margins.
Net Loss and Profitability: Grupo Financiero Galicia reported a net loss of ARS 87.7 billion for the quarter, with negative returns on average assets and equity.
Cost of Risk: The cost of risk increased due to loan book growth and higher delinquency rates in retail segments.
Operational Costs: Personnel expenses rose 83% due to a voluntary retirement program linked to restructuring, adding to operational challenges.
Asset Quality Coverage: Coverage with allowances for NPLs decreased to 105%, down from 117.9% in the previous quarter, reducing the buffer against credit risks.
Public Sector Exposure: Net exposure to the public sector decreased, but reliance on government securities remains a potential risk.
Profitability Outlook: Grupo Financiero Galicia expects an improvement in profitability during the fourth quarter of 2025 and into 2026. The reported ROE for 2025 is projected to be around 4%, or 6% excluding nonrecurring integration costs. For 2026, the company anticipates an ROE in the low teens range, between 11% and 12%, with a target of achieving ROEs above 15% in the longer term.
Margins: Margins are expected to improve in November and December 2025, reaching levels similar to the second quarter of 2025. For 2026, margins are projected to remain healthy, with some slight reductions due to anticipated rate reductions.
Non-Performing Loans (NPLs): NPLs are expected to peak in March 2026, followed by improvements as the portfolio mix shifts towards higher-quality loans. By the end of 2026, NPLs are projected to be better than the current run rate.
Cost Reductions: The company expects year-over-year cost reductions in 2026 due to restructuring efforts, including a headcount reduction of 2,000 employees in 2025. This is expected to contribute to improved cost efficiency.
Long-Term ROE Target: The company aims to achieve a 15% ROE run rate by the fourth quarter of 2026, providing a solid foundation for delivering ROEs above 15% in 2027 and beyond.
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The earnings call presented mixed signals. While there are positive elements such as expected loan growth and a recovery in margins, concerns remain about high NPLs and capital ratio declines. The Q&A revealed management's confidence in capital levels and a focus on deposit growth. However, uncertainties in asset quality and vague responses on liquidity and dollar lending temper optimism. The strategic plan suggests temporary challenges with a more positive outlook for 2026, but current financial metrics and guidance do not strongly indicate a significant stock price movement in the short term.
The earnings call highlights several concerns: increased loan loss provisions, deteriorating NPL ratio, and decreased regulatory capital ratio. Despite strong deposit and loan growth, guidance was lowered, and financial margins are expected to deteriorate. The Q&A revealed further uncertainties, such as higher cost of risk and unclear impacts of funding costs. The merger's impact on capital ratios adds complexity. Given these factors and the bank's mid-cap status, a negative stock price movement is likely over the next two weeks.
The company's financial performance shows strong net income growth, but the decline in net interest income and regulatory capital ratio, coupled with no share buyback program, tempers enthusiasm. The Q&A reveals no immediate capital raising needs and stable dividend plans, but uncertainties in inflation accounting and provisions at Naranja X remain. The market cap suggests moderate stock price sensitivity, leading to a neutral outlook as positive and negative factors balance each other.
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