Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina’s Fourth Quarter and Fiscal Year 2023 Results Conference Call. We would like to inform you that this event is being recorded, and all participants will in listen-only mode during the company’s presentation. After the company’s prepared remarks are completed, there will be a question-and-answer section. [Operator Instructions] First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under US Federal Securities Law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

Additionally, information concerning these factors is contained in BBVA Argentina’s Annual Report on Form 20-F for the fiscal year 2022, filed with the US Securities and Exchange Commission. Today, with us, we have Ms. Carmen Morillo Arroyo, CFO; Ms. Ines Lanusse, IRO; and Ms. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Belen Fourcade: Good morning, and welcome to BBVA Argentina’s fourth quarter and fiscal year 2023 results conference call. Today’s webinar will be supported by a slide presentation available on our Investor Relations website on the Financial Information section. Speaking during today’s call will be Ines Lanusse, our Investor Relations Officer; and Carmen Morillo Arroyo, our Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1, 2020, as per Central Bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For ease of comparability, 2022 and 2023 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through December 31, 2023. Now, let me turn the call over to Ines.

Ines Lanusse: Thank you, Belen, and thank you all for joining us today. 2023 ends with a new elected governing party, which has announced an adjustment plan to start correcting the strong macroeconomic distortions, which among others, include a significant reduction of fiscal deficit and a depreciation of the local currency to ease FX restrictions. In a context where uncertainty remains high, BBVA Research estimates an annual inflation near 175% by the end of 2024 and expects GDP to fall 4% this year as of the date of this report. It is expected that the most intense recession and inflationary acceleration should happen in the first semester, while expectations improve for the second part of the year. In spite of its impact in the short term and high associated risks, these adjustments could state the basis for a sustained reduction in inflation and a recovery in a potential growth for the economy from the second half of 2024 onwards.

Now, moving into business dynamics, as you can see on Slide 3 of our webcast presentation, our service offering has evolved in such way that by the end of December 2023, retail digital clients penetration reached 62%, while retail mobile clients reached 57%. The response on the side of the customers has been satisfactory and we are convinced this is a path to pursue in the aim of sustaining and expanding our competitive position in the financial system. Retail digital sales, measured in units, reached 93.2% in the fourth quarter of 2023 and represent 69.8% of the bank’s total sales measured in monetary value. New customers acquisition through digital channels reached 75% in the fourth quarter of 2023 from 72% in the fourth quarter of 2022. The bank actively monitors its business, financial conditions, and operating results in the aim of keeping a competitive position to face contextual challenges.

Moving to Slide 4, I will now comment on the bank’s fourth quarter 2023 and fiscal year 2023 financial results. BBVA Argentina’s inflation adjusted net income in the fourth quarter of 2023 was ARS48.6 billion, 220.8% higher than the net income in the third quarter of 2023. This implied a quarterly ROE of 15.3% at a quarterly ROA of 3.2%. BBVA Argentina’s inflation adjusted net income for the 12 months of 2023 totaled ARS164.9 billion, 8.6% lower than the 12 months of 2022. In 2023, BBVA Argentina posted an inflation adjusted ROA of 2.7% and an inflation adjusted ROE of 13%. Operating income in the fourth quarter of 2023 was ARS477.9 billion, 86.4% higher than in the third quarter of 2023, while in the year, the accumulated operating income reached ARS1.19 trillion, 86.4% above the one recorded in 2022.

Quarterly operating results are mainly explained by, one, better foreign exchange income, especially due to a greater position in Dual National Treasury bonds; two, better net interest income results; three, better net income from write-down of asset at amortized cost and at fair value through OCI, mainly due to the sale of inflation linked bonds; and four, lower administrative expenses. Net income for the period was highly impacted by income from net monetary position, as inflation on the third quarter of 2023 was lower than the fourth quarter of 2023, reaching 53.9% in the fourth quarter of 2023 compared to 34.8% in the third quarter of 2023. On an annual basis, the 86.4% increment in real terms of the bank’s operating income is mainly explained by an increase in interest income, mostly due to an increase in the position and yield of Central Bank instruments and CER bonds, as well as interest from loans In 2023, what also stands out is the increase in the foreign exchange income due to the higher position in dollarized assets and net income from write-down of assets at fair value through OCI, mainly due to the sale of corporate bonds in the third quarter of 2023 and the exercise of a put option on inflation linked bonds in the fourth quarter of 2023.

Another factor to consider in the annual comparison is the income tax line, which represented only ARS12.2 million loss in 2022, explained by the implication of fiscal inflation adjustment in the determination of payable taxes and taxi deferrals. Last but not least, net income in 2023 is affected by income from net monetary position in a context of higher inflation, which reached 211.4% in 2023 versus 94.8% in 2022. Turning into the P&L lines in Slides 5, 6, and 7, net interest income for the fourth quarter of 2023 was ARS495.7 billion, increasing 19.7% quarter-over-quarter. In the fourth quarter of 2023, interest income in monetary terms decreased more than interest expenses, mainly due to lower income from government securities. In the fourth quarter of 2023, the decrease in interest income is mainly driven by the fall in income from government securities, especially LELIQ, which issuance was terminated by the Central Bank in December 2023, reducing its volume on year-end.

The CEO of the retail bank standing in front of the company's logo, pointing to the future of the business.

This was partially offset by better income from REPO premiums and more income from inflation linked bonds and loans. Interest expenses totaled ARS383.9 billion, denoting a 20.9% decrease quarter-over-quarter. Quarterly decline is described by global time deposits and checking account expenses, in particular, interest-bearing checking accounts. Interests from time deposits, including investment accounts, explain 71.2% of interest expenses versus 70.5% in the previous quarter. Net fee income as of the fourth quarter of 2023 totaled ARS35.6 billion, increasing 36.9%. In the fourth quarter of 2023, fee income totaled ARS70.7 billion, increasing 18.8% quarter-over-quarter. The quarterly increase is mainly explained by a 41.9% growth in fee from credit cards, due to a lower expense related to Puntos BBVA loyalty program and higher activity, combined with an increase in prices.

Regarding fee expenses, these totaled ARS35.2 billion, increasing 4.7% quarter-over-quarter. Greater expenses are explained by fees paid in foreign exchange related to royalties affected by the devaluation of the local currency and payroll marketing campaigns. In the fourth quarter 2023, loan loss allowances increased 74.9%. The increase is explained by the accounting re-expression of loan loss allowances in the foreign currency portfolios. During fourth quarter 2023, total operating expenses were ARS211.7 billion, increasing 0.6% quarter-over-quarter, of which 32% were personnel benefits costs. Personnel benefits increased 2.6% quarter-over-quarter. The quarterly change is mainly explained by the inflation adjustment of vacation stock provisions and variable compensations.

This adjustment is applied retroactively to the last 12 months. As of the fourth quarter of 2023, administrative expenses fell 29.5% quarter-over-quarter. These were explained by an increase in the amount of services contracted with the parent company, offset by the update of the provision of these expenses in line with the FX rate depreciation estimated at the quarter-end. Being this said, the quarterly efficiency ratio as of the fourth quarter of 2023 was 46.4%, improving compared to the 82.4% reported in the third quarter of 2023. The quarterly decrease is explained by a decrease in expenses and an increase in net income, especially due to an increase in results from income from foreign exchange, as well as income from write-down of assets at amortized cost and OCI.

The accumulated efficiency ratio as of the fourth quarter of 2023 was 58.6%, improving compared to the 63.8% reported in the third quarter of 2023. The improvement in this ratio is due to a lower increase in expenses versus net income. This positive variation in the ratio is also due mainly to better income from write-down of assets at amortized cost and OCI, and income from foreign exchange. In terms of activity, on Slide 8, private sector loans as of the fourth quarter of 2023 totaled ARS2 trillion, decreasing 5.7% quarter-over-quarter and 12.3% year-over-year. Loans to the private sector in pesos fell 9% in the fourth quarter of 2023. During the quarter, the decrease was especially driven by a general decline in loans. The decrease was partially offset by a 1.6% increase in overdrafts, driven by greater activity.

Loans to the private sector denominated in foreign currency increased 41.1% quarter-over-quarter. Quarterly increase is mainly explained by a 54.7% growth in financial and prefinancing of exports. Loans to the private sector in foreign currency, measured in US dollars, decreased 6.1% quarter-over-quarter. During the quarter, the retail portfolio fell 11.7% and the commercial portfolio increased 0.9%. As observed in the previous quarters, loans portfolio were impacted by the effect of inflation during the fourth quarter of 2023, which reached 53.3%. In nominal terms, BBVA Argentina managed to increase the retail, commercial, and total loan portfolio by 35.3%, 54.7%, and 45.2%, respectively, only surpassing quarterly inflation levels in the case of commercial loans.

BBVA Argentina’s consolidated market share of private sector loans reached 9.85% as of the fourth quarter of 2023, improving from 9.10% a year ago. As of the fourth quarter of 2023, asset quality ratio keeps a very good performance at 1.29%, in line with the good behavior of both retail and commercial portfolios. The lower decrease of the total loan portfolio versus that of the non-performing portfolio is explained by a growth in commercial loans, driven by a devaluation of the FX rate, without significantly affecting clients’ credit behavior. On the funding side, as seen on Slide 9, private non-financial sector deposits in the fourth quarter of 2023 totaled ARS3.1 trillion (ph), decreasing 8.6% quarter-over-quarter. The bank’s consolidated market share of private deposits reached 6.79% as of the fourth quarter of 2023.

Private non-financial sector deposits in pesos decreased 26.1% compared to the third quarter of 2023. The quarterly change is mainly affected by a 40.9% decline in time deposits, a 37.1% fall in investment accounts, and a 22% fall in checking accounts, the latter driven by the bank’s strategy of reducing interest-bearing checking accounts. Private non-financial sector deposits in foreign currency expressed in pesos increased 63.4% quarter-over-quarter. This is mainly explained by seasonal factors. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators on the fourth quarter of 2023. Capital ratio reached 32.8%. Growth in the ratio was mainly driven by an increase in capital, mainly due to better OCI results in the fourth quarter of 2023.

Exposure to the public sector in the fourth quarter of 2023, excluding Central Bank instruments, represented 15.9% of total assets, above the 12.7% in the third quarter of 2023 and below the 22.4% reported by the system as of December 2023. The bank’s total liquidity ratio remained healthy at 91.2% of total deposits as of December 31, 2023. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Walter Chiarvesio with Santander. Please go ahead.

Walter Chiarvesio: Hi. Good morning. Thank you for taking my question. I would like to understand what you are envisioning for the dynamic in the next 12 months or probably beyond that. Still, large part of the profitability of the banks in Argentina come from this position to exposure to the public sector, particularly Treasury bonds now. But if the economic plan is successful, probably, we will see low inflation rates towards second part of the year and banks will start to shift their portfolio from the public sector to the private sector lending. How do you envision that? How do you think that — what is your strategy? What is the role of the Central Bank with this put that you have to sell the bonds to the Central Bank in order to shift the portfolio to the private sector loans? What is the dynamic that you envision for the rest of the year? Thank you.

Ines Lanusse: Hi, Walter. How are you doing? Okay, let me start by the first part of your question. I would highlight from the results we presented for 2023 that despite the scenario you have been describing now, high inflation around 211% and still being high, although a little bit smaller for — lower for 2024, we’re projecting 175% inflation year-end. With the — what happened with the monetary policy rate, that went up and then went down with the devaluation. And as you mentioned, with banks mainly lending, acquiring bonds because of the lack of demand, BBVA, in particular, has been able to keep lending and increasing our market share. Our market share during 2023 increased 75 basis points. And that is something that I would like to highlight, because we believe the — what the bank needs to do is, despite the context, keep lending.

Going forward, we still see, or we still project a contraction in real terms of the loan growth for the system. We are projecting a 24% decrease in real terms. But the bank should be decreasing less, around 11%. So, we still are aiming to keep increasing our market share and also, in parallel, increase our active clients that, as you’ve seen in our presentation, has increased 10% from the figures of last year. So, moving forward, we believe there are still a lot of moving parts to be able to define when this pickup in lending will start. But the bank is committed to keep lending and increasing market share and start switching our positions in bonds and Central Bank instruments that we have in our assets by loans. That is the commitment and where we are aiming for the next years.

But we need the macroeconomic scenario to start changing.

Walter Chiarvesio: Okay. Perfect. Thank you very much, Ines.

Operator: [Operator Instructions] This concludes our question-and-answer session. At this time, I would like to turn the floor back to Ms. Lanusse for any closing remarks.

Ines Lanusse: Okay. Thank you very much for your time, and let us know if you have further questions. Have a good day.

Operator: Thank you. This concludes today’s presentation. You may now disconnect your line at this time, and have a nice day.

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BANCO BBVA ARGENTINA SA

Q4 2023

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