Grupo Financiero Galicia S.A. (NASDAQ:GGAL) Q2 2025 Earnings Call Transcript

Grupo Financiero Galicia S.A. (NASDAQ:GGAL) Q2 2025 Earnings Call Transcript August 27, 2025

Operator: Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia Second Quarter 2025 Earnings Call. This conference is being recorded, and the replay will be available at the company’s website at gfgsa.com. [Operator Instructions] Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities law and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Now I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference.

Pablo Eduardo Firvida: Thank you, Sophia. Good morning, and welcome to this conference call. I will make a quick speech I’m here with Gonzalo Fernandez Covaro, CFO of Grupo and of the bank. Later, he will make some additional comments. And of course, we will be both available for Q&A. According to the monthly indicator for economic activity, EMAE, the Argentina economy recorded a 6.4% year-over-year increase during June, reaching an expansion of 6.2% during the first half of 2025. During the second quarter, the primary surplus reached 0.4% of GDP and the overall surplus was 0.2% of GDP, explained by primary revenues increasing 37.7% year-over-year, whereas primary spending rose 42.1%. During the first 7 months of 2025, the primary balance stood at 1.1% of GDP, while the financial balance amounted to 0.3% of GDP.

The National Consumer Price Index accumulated a 6% increase during the second quarter of 2025 and a 17.3% year-to-date increase as of July. Between May and July, monthly inflation slipped below 2% threshold. In July, monthly inflation stood at 1.9% and accumulating 36.6% in year-over-year terms. The monetary base increased by ARS 6.6 trillion in the quarter, recording an 84.2% increase in year-over-year terms. On April 11, 2025, the Central Bank implemented a foreign exchange bank system within which the exchange rate may fluctuate freely. These bands were initially set between ARS 1,000 per dollar and ARS 1,400 per dollar and are adjusted monthly at a rate of minus 1% for the lower bound and plus 1% for the upper bound. The exchange rate averaged ARS 1,181 per dollar in June 2025, a 23.5% devaluation in year-over-year terms.

During the first half of 2025, the benchmark interest rate was set by the Central Bank. However, on July 10, the monetary authority ceased offering [ Leves ] and the interest rate is currently determined endogenously by the market, in line with the regime focus on monetary aggregates. In June 2025, the average rate on peso-denominated private sector time deposits for up to 59 days stood at 32.2%, 1.1 percentage points below the June 2024 average. Following the change in monetary policy, in mid-July, interest rates increased and ended the month at 37.4%. Private sector deposits in pesos averaged ARS 89.1 trillion in June, increasing by 10.6% during the quarter and 69.1% in the last 12 months. Time deposits in pesos rose 5.3% during the quarter and 93% in the year, while peso-denominated transactional deposits increased 16.4% during the second quarter and 49.6% in year-over-year terms.

Private sector dollar-denominated deposits amounted to $30.4 billion in June 2025, increasing 2.5% during the quarter and 71.8% in the last 12 months. Peso-denominated loans to private sector averaged ARS 72.3 trillion in June, showing a 19% quarterly increase and a 181.7% year- over-year expansion. Private sector dollar-denominated loans amounted to $15.8 billion, recording a 12.1% quarterly growth and a 147.3% annual increase. Turning now to Grupo Financiero Galicia. I would like to mention that at the end of June, we successfully finished the merger with Galicia Más, former HSBC in Argentina. We unified the banking unit with Banco Galicia, the mutual fund management with Galicia Asset Management and the insurance companies with Galicia Seguros.

The change for the clients was very smooth with no frictions, and we grew around 2.5% in market share of both loans and deposits. For comparison purposes, figures for the first quarter of 2025 include the balances of the merged companies, while the figures of the second quarter of 2024 are not fully comparable as they do not include any HSBC figures. Going now to the results for the quarter. Net income amounted to ARS 173 billion, 70% lower from the year ago quarter. The result comes from profits from Banco Galicia for ARS 98 billion, from Naranja X for ARS 32 billion, from Galicia Asset Management for ARS 27 billion and from Galicia Seguros for ARS 13 billion. This profit represented a 1.9% annualized return on average assets and a 9.5% return on average shareholders’ equity.

The result from Banco Galicia was negatively affected by the increase in the cost of risk associated with the growth of the loan book and the increase in the nonperforming loans in the retail segment, particularly in personal loans and credit card financing. The net income for the quarter was 76% lower than in the same quarter of 2024 due to a 67% lower operating result. This was primarily a consequence of a 40% decrease of net operating income as net interest income decreased 36%. Net results from financial instruments were down 37% and loan loss provisions increased 192%, which were partially offset by a 30% growth of net fee income. Average interest-earning assets reached ARS 17.3 trillion, 38% higher than in the same quarter of 2024, primarily due to 117% increase of the average portfolio of loans in pesos and a 262% higher dollar-denominated loan portfolio, partially offset by a 94% reduction in the average balance of other interest-earning assets in pesos.

In the same period, its yield decreased 35 percentage points, reaching 37.4%. Interest-bearing liabilities increased 74% from June 2024, amounting to ARS 14.8 trillion, primarily due to the increase of time deposits in pesos and of saving accounts in dollars. During this period, its cost decreased 15 percentage points to 15.6%. Net interest income decreased 36% when compared to the second quarter of 2024. This was the result of a 29% decrease in interest income because of a 62% lower interest on government securities and a 99% lower interest on repo transactions, together with a 13% decrease in interest expenses due to a 6% lower interest on time deposits and a 27% lower interest on other deposits. Net fee income increased 30% from June 2024 due to a 51% higher income from credit card fees and a 28% from fees from — on deposits.

Net income from financial instruments decreased 37% due to a 53% lower result from government securities. Gains from FX quotation difference were 12% lower from the year ago quarter, including the results from foreign currency trading. It is worth to mention that during April, many regulations that limited the access to the FX market were removed mainly for individuals and thus, FX trading increased significantly, growing 153% when compared to the first quarter of this year. Other operating income increased 150% in the quarter, mainly due to the 290% increase in other adjustments and interest on miscellaneous receivables and of 145% in other operating income. Provision for loan losses increased 192% because of the growth of the financing portfolio and to an increase in delinquency that is circumscribed to the portfolio of personal loans and credit card financing to individuals.

Personnel expenses were 3% lower than a year before. It is worth to mention that in the first quarter, we began to use the provision for restructuring expenses established in the fourth quarter of last year. Administrative expenses increased 35% due to a 77% increase of expenses for maintenance and repairment of goods and IT and to a 62% increase of hired administrative services. Other operating expenses increased 13% due to a 12% higher turnover tax related to financial operations. Results from the monetary position decreased 56% year-over-year following the declining evolution of inflation. The income tax charge was 75% lower than in the year ago quarter due to lower operating results. The bank’s financing to the private sector reached ARS 16.9 trillion at the end of the quarter, up 123% in the last 12 months with peso financing increasing 106% and dollar- denominated financing growing 181%, while by credit line, promissory notes increased 92%, credit card financing 66% and personal loans 201%.

Net exposure to the public sector decreased 33% year-over-year, primarily due to the 39% decrease in government securities adjusted by CPI at amortized cost and to the 99% reduction of repo transactions with the Central Bank. This exposure represented 19% of total assets as of the end of the quarter compared to 42% of the year before. Deposits reached ARS 19.9 trillion, 72% higher than a year before, mainly due to a 162% increase in saving accounts in dollars, a 76% increase in time deposits in pesos and a 47% increase in peso-denominated checking accounts. The bank’s estimated market share of loans to private sector was 14.5%, 260 basis points higher than at the end of the year ago quarter and the market share of deposits from the private sector was 16%, 550 basis points higher than in the same quarter of 2024.

The bank’s liquid assets represented 94.3% of transactional deposits and 65.2% of total deposits compared to 147.7% and 101.5%, respectively, from a year before. As regards asset quality, the ratio of nonperforming loans to total financing ended the quarter at 4.4%, recording a 240 basis points deterioration as compared to the 2% of the second quarter of the prior year. And as I mentioned before, the deterioration is limited to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 117.9%, down 42.4 percentage points from the 160.3% recorded a year ago. As of the end of June 2025, the bank’s total regulatory capital ratio reached 23.7%, decreasing 510 basis points from the end of the same quarter of 2024, while the Tier 1 ratio was 23.2%, down 460 basis points during the same period.

In summary, in a challenging and volatile political and macro environment, Grupo Financiero Galicia was able to keep liquidity, solvency and profitability metrics at healthy levels, adapted its strategy for credit granting to the new context in order to prioritize lower risk segments and to revert the trend of deterioration in asset quality and completed a very fast and successful integration with Galicia Más. Lastly, on August 6, the Board of Directors of Banco Galicia elected Diego Rivas as [ CFO ] of the bank, while Fabián Kon will remain as the CEO of Grupo Galicia. This will be implemented as of September 1. Now I would like to give the word to Gonzalo Fernandez Covaro for additional remarks.

Gonzalo Fernandez Covaro: Thanks, Pablo. Hi, everyone. Well, regarding how we see the rest of the year, as you know, government has tightened its monetary policy, increasing minimum liquidity requirements, and that has generated a significant increase in short-term interest rates together with high volatility. [ TA ] rate has increased from 30% levels to 60% levels in a very short period of time. This change in interest rates are impacting the local financial system as our funding is very short term, so it reprices very fast, but assets are taking more time to reprice as now we have more loans in our asset composition. We are seeing a margin compression in the third quarter that is expected to be temporal and could finish after elections once the political side is clear, but it’s something that we cannot define when this will stabilize and change again.

Of course, this is something we didn’t expect a couple of months ago, and we are still evaluating the impact as the rate is very volatile and changed significantly from one day to the other. And also, we have been having new regulations and changes in minimum liquidity requirements in a short period of time. On the other hand, as we have been explaining in prior calls, the portfolio performance of the consumer lending in Argentina has deteriorated. It’s a market issue as people need to get used to manage credit in low inflation environment coming from negative interest rates to very positive interest rates. Also the effect of having lower disposable income as utility prices went up. We are expecting stabilization of the NPLs on the consumer lending by the end of third quarter.

We started to see a lower or a slower deterioration and start stabilization end of third quarter, beginning of the fourth quarter. As we also have told in prior calls, we have implemented many changes in our loan origination, in collections, in changing credit limits that are being successful, but takes some time to fully impact the portfolios. Consider these effects, we expect our ROE to be in the range of 9% to 11% for 2025. To give also more context, this guidance does not include any additional restructuring cost onetime that we may have in the second half. As we have been anticipating in all the calls and presentation, we had implemented the voluntary redundancy program that we implemented to achieve the structure rightsizing after the HSBC acquisition and it’s been very successful.

As you can see in our press release, we already made a significant headcount reduction from first quarter to second quarter. If this continues, it could imply additional onetime expenses in the second half of the year as the provision that we booked at last year may not be enough. We expect that the impact could go up to 2 points of ROE that are not included in the guidance that I just mentioned if all eligible people sign up for the program. If this happens, of course, it’s excellent news for us as we will achieve our rightsizing by year-end, much better than what we expected at the beginning of the year with a onetime P&L impact that will not repeat in the future. So as we said, so that’s something that we don’t know if it will happen, but the pace that the program is happening may infer that, that could happen.

As we said in prior calls, we consider this year a transition year where we finished the HSBC integration, we rightsized the structure, grow and stabilize portfolio performance, we can start 2026 with all our potential and deliver our sustainable ROEs. So that were the remarks I wanted to make. So open for questions, if you want.

Pablo Eduardo Firvida: Yes. Thank you, Gonzalo. We are now ready to answer the questions that you may have.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Brian Flores with Citi.

Brian Flores: Gonzalo, a follow-up on the comments you made on the guidance. So 9% to 11% is this representing any adjustments on the previously guided ranges for loan growth and deposits? I think that’s maybe the first question. If I may, I’ll ask the second one after that one.

Gonzalo Fernandez Covaro: Yes. I mean, loan growth could be — we were talking about 50% before. We are now seeing it more closer to 40% in part of lack of — with all this volatility, demand is also decelerating plus the measures we took to stabilize consumer lending, also to reduce the mortgage space because of lack of securitization in the market. So we see more large 30%, 40% growth in lending and deposits around 35% — 30%, 35%.

Brian Flores: Perfect. Super clear. And then I wanted to ask you a bit on capital, right? Because you saw an improvement quarter-over-quarter. Just wanted to understand, Gonzalo, where does this mostly come from because your pace of growth is still very relevant. And then maybe connecting to that question, it seems that for ROE to improve going forward, you might need to relever your balance sheet. So at some point, the discussion on paying more dividends in the cards going forward?

Gonzalo Fernandez Covaro: Sorry, pay more dividends in the card. I couldn’t understand that last sentence.

Brian Flores: No, with the capital that you have is more dividends at some point…

Gonzalo Fernandez Covaro: To reduce capital, you mean?

Brian Flores: Yes, yes, exactly.

Gonzalo Fernandez Covaro: I mean — hi, Brian, the increase on capital ratio is just the merger of the 2 banks. I mean, before — as you see, the ratio that we have last quarter was just Banco Galicia. We didn’t adjust it — we didn’t restate that in the press release because as this is a regulatory metric, we didn’t want to combine something that was not presented for regulatory purposes. So when combined the 2 banks, the new capital ratio is close to 24%. I think we also mentioned that in prior calls that our estimation for the capital ratio after integration was going to be 24%. Galicia Más, HSBC has a stronger — even stronger capital ratio. So after the merger, that’s the new capital ratio. And the reason of the jump is that before in first quarter, it was just Banco Galicia, the one that you have there in the press release.

Talking about the future, I mean, about — yes, I mean, dividend policy is something that we always analyze and assess, and we will do that after closer to year- end for next year. We believe that there are still a lot of efficiencies that we can make that can benefit our ROE. I mean, even though margins may go down if Argentina stabilize, but NPLs should also stabilize at lower levels. And our expenses, I mean, we still — we are seeing that this year — if everything goes as expected, we may only take from the former HSBC 1/3 of the cost for next year. I mean, next year, — our run rate next year will be using only 30% of what HSBC used to have on a yearly basis. So that’s another thing that is not counted this year because all the savings are being done on a monthly basis, and most of them may be in the second half of the year.

So we need to — we want to find the best balance between net income growth and dividends also considering that we believe Argentina has a lot of potential for lending growth, and we want to have the sufficient capital to be able to face that growth. So — but that is something that, of course, we will continue looking at and change it if we think that is the best way to proceed.

Brian Flores: That was super helpful. And if I may, just very quickly on this HSBC integration, you mentioned 2 points of ROE would still be pending. So is this, if I’m understanding correctly, not considered within the guidance, but could be, let’s say, an upside if…

Gonzalo Fernandez Covaro: What I said is — again, it’s up to because we don’t know, but if we have all the eligible people signing to the program that could generate onetime expense that could be up to 2 points of ROE on a negative side because it will be an expense. But again, it’s a one- timer. So it’s something that I wouldn’t consider recurring income will be in the reported P&L. But if it happens again, but will not be recurring for future years, but we will have all the savings for future years. So if it happens, it’s a negative one because it’s an additional expense onetime.

Operator: Next question from Yuri Fernandes with JPMorgan.

Yuri Rocha Fernandes: I would like to explore a little bit more the asset quality discussion here because given there is very low leverage, right, Argentina is still a growth story, a penetration on credit GDP. It caused my attention like the pace of the worsening in the retail NPL. I know this is industry. It was clear on the explanation like on the disposable income on people getting used to the real rates. But it’s still — I struggle a little bit. So if you can comment a little bit what you saw, like if there is any kind of income classes that are suffering the most, if you are, I don’t know, shifting the strategy to maybe, I don’t know, ask for more collateral. I know it’s credit card and personal loans, so this can be tricky.

But my point of concern here is that we have challenges on the funding side, as you mentioned. And on the asset quality side, if you slow down personal loans, everybody will try to move to the commercial side, right? So you can have like an additional pressure on margins because like commercial is maybe the only healthy loan. So if you can explain a little bit an outlook, the product, the clients, what you can do to improve NPLs, I think that would be important. And also comment on coverage. The coverage ratio getting below 120%, I think it’s overall a low number. So if you can comment a little bit on how should we think about the NPL coverage ratio going forward? I think it can be important.

Gonzalo Fernandez Covaro: Okay. I mean, yes, talking about NPLs, I mean, the main impact, as you said, is credit cards and personal loans. We have growth — have grew personal loans faster than the market last between March ’24 to March ’25, faster than the market, and that’s of course, is the product with higher NPLs, even though credit card has deteriorated, but personal loans is worse. After March ’25 — last March, we started making changes to origination policy that we are still refining. But that generated the pace of deterioration because, of course, in order to grow and capture market share and capture Argentina opportunity, we went to segments that a bit riskier than the ones that we were going in the past. That’s something that we changed.

But the mix of the growth was a bit worse than prior years because there was a lack of demand, et cetera. So this year, the 12 months between March ’24 to March ’25, we saw a higher composition of the mix of, let’s say, lower segments or a bit riskier segments. That’s something that we already changed and we are focusing more in — we already make changes to scorecard and — limits in credit cards, but in personal loans in scorecards are now focusing more — in more safer segments, which are still providing healthier volume. I mean even though we are decelerating the volume, but not — we are finding that with better risks, we still can disburse loans without going to the riskier segment. So that’s our strategy now. I mean, of course, that we will go to all the segments, but with a different strategy where you start with very, very low disbursements, wait, don’t have customers, — new customers that just joined the bank if they are higher risks to get a loan, so let’s have them as clients for a while.

So those are all the strategies that we are putting there. But again, I mean, we still see our retail banking growing with better segments without sacrificing much the volume, let’s say. Of course, that commercial side and mainly SMEs is a focus that we are increasing, of course, with cautious because according — depending on how the economy evolves, that could also be another sector that may have problems depending on which sector you are. But it’s something that we started to focus. If Argentina stabilized, after the elections and we start to see growth — I mean, activity growth as we have been seeing in the last month, we believe that in the commercial lending and also not corporates, but also coming to medium corporates, there is room for growth for everyone.

I mean, as you said, lending has a very low penetration in Argentina. So we believe that we can grow there without a lot of margin compression because there are still a lot of demand nonsatisfied. The couple of months with the rate volatility and pre-elections, it’s kind of something that we need to put away. But after that, after elections, with markets being — leaving aside the political factor, we believe that the company will start thinking doing business again, and we can benefit all the financial system can benefit from that, and we may have a space to grow also in the commercial segment without sacrificing much margins. We believe that it’s key for us to stabilize the consumer NPLs, and that’s something that we are focusing on. And we are seeing the first signs.

Of course, we still have a stock because first was the personal lending, then we started making to personal lending, but then credit cards came after. So that’s why we are seeing a bit of the delay of the stabilization. I think credit card was not just — were not new customers, was the old customers that starts to have problems because of what we mentioned. So the approach was different was, okay, let’s reduce limits and let’s — to existing customers where we see more risk and let’s increase focus in collections and refinancing programs, et cetera, and that’s what we are doing also. So I would say that’s how we see it. And in terms of — I mean, we are expecting to — I mean, of reserve coverage, the merger with HSBC also makes some — because we need to do some recalibration between the 2 situations for the same customer.

Sometimes we have shared customers that one bank was performing well and the other has a problem. So now we need to align that and that has an impact also and impacted also the coverage ratio. We see for year-end around — yes, I would say, a bit above 120 — between 120% and 130%. That’s what we see for year-end more or less.

Yuri Rocha Fernandes: No, super clear, Gonzalo. So just making sure I got everything. Worsening, you had like higher appetite, you’re growing faster. Yes, personal loans, a little bit of new customers that maybe they were riskier. Credit cards a little bit of everything, you are reducing your limits, improving collections and coverage 120%, 130%. Just on the credit, a debate we had in other markets was regarding principality, right? Like, which is the, let’s say, the favorite bank of the clients? And I guess in Argentina, people discuss a lot Mercado Pago, Mercado Libre and like some fintechs. Do you have any perceptions that principality matters at some degree here or not really? It’s really a matter of people having disposable income and maybe higher limits out of the blue and now people are not behaving the way you thought they would behave. So just trying to understand the principality, principality could be a debate also happening here in Argentina.

Gonzalo Fernandez Covaro: I would say the principality, yes, of course, it’s something that is important. I don’t think that, that impacts NPLs or not or performance. I don’t know if that was for me, and they are not related. It’s more on a profitability thing. If you — we all want to have the principality of the customer because they do business — more business with us regardless the performance. I think that the customer that is not performing is not because it’s not — has not the principality with you, it’s just because it’s having problems. In Argentina, again, it’s something that we all look at, but customers got used to get many banks in the — with all the promotions in the past after 2021 and discounts, where customers used to open a lot of credit cards because they have different discounts on Mondays with one bank, on Tuesday with the other.

So they got used to get many banks, many accounts or many credit cards. And now Mercado Pago, it’s also another competitor there. So it’s something that is not as easy to achieve for banks, but it’s something that for us is very important. So that’s why what we call the everyday banking. We want to be the everyday bank for our customers. So we invest in the app, for example, giving to them all the functionalities for them to do. We — for example, now with dollars, we started paying interest in the dollar deposit account. So they bank in dollars with us, and we have the best market share in foreign FX buying and sell on dollars for people, for consumers now that the FX restrictions have gone away for people. So it’s important for us, but mainly considered from a profitability perspective, and we do a lot of things to get it.

In Argentina, it’s something that from what I said, sometimes it’s not that easy because customers are used to have many banks in their wallet.

Operator: Our next question comes from Pedro Leduc with Itaú BBA.

Pedro Leduc: A very quick follow-up on the NPLs. When you say stabilize, you mean like stabilize, rise less or be flat or maybe falling towards the end of 3Q or 4Q? That’s just a quick follow-up. And then the real question is on financial margins. We saw it actually increasing a bit Q-on-Q. And a lot of it is coming from funding cost efficiency that we’re seeing. But I also want to look ahead a bit on the NIMs, we’re seeing the government issue higher rate bonds. We’re seeing you probably price up a little bit more and the funding savings seem sustainable. So I want to maybe get a sense from you if we can expect financial margins now growing in the second half of the year after slightly upticking in 2Q.

Gonzalo Fernandez Covaro: Yes. No, thank you. So talking NPLs, we see a slight increase and stabilize at the end of the third quarter, but still a slight increase in the third quarter with stabilization by the end of the quarter. Talking about margins. Margins, yes, we have a healthy second quarter, better funding costs, also better government bonds performance, yielding in the inflation-linked bonds that we have because of the spike in inflation. I think we have — it was in March, but we got 2 months lag in the bonds, so that has affected the second quarter for the market. I mean, I would say we will have a third quarter which is kind of something — an outlier on the year. I think what I tried to explain at the beginning.

I mean all this volatility in interest rates and increase in funding costs will be negative for the system, I would say, in the third quarter. So we will have a deterioration in the third quarter of the margins, which due to this interest rate volatility and interest rates, huge increase. I mean, as I said, [ TA ] rate was 30% and now it’s 60% in a month. That increasing our short-term funding, which is, as you know, banks in Argentina, our funding is really short term. Time deposits are 30 days maximum in general in average. And assets now that we are having more lending takes a bit more to reprice. So for the short term, third quarter, we will see a margin deterioration because of the funding cost increase for this volatility, this new monetary policy of the government trying to [indiscernible] and take pesos out of the market by increasing minimum liquidity requirements and other things that you know are happening.

So that will be negative for the third quarter. And then we expect, of course, after elections once political side gets out of the way, we believe that things should stabilize again and rates go back to the what we used to have in the second quarter, and we can go back to those margins, the ones that we had in the second quarter. When that will happen is very difficult because, I mean, we are in the middle of volatility, political noise. We all expect that — and with very, very high real interest rates, I mean I would say, record interest — real interest rates, meaning above inflation. So that’s something that at some point should stabilize. We expect this to be after the elections, it’s very difficult to predict when exactly. But with — according to the results of the elections, that should stabilize.

But third quarter will be worse, then for what I just explained, then we should come back to second quarter levels, but at some point in the fourth quarter, I would say fourth quarter.

Operator: Next question from Alonso Aramburú with BTG.

Alonso Acuna Aramburú: Yes, I was going to ask also about margins. Maybe if you can provide what’s the level of impact you’re seeing in 3Q? Is it 100 basis points, 200 basis points? I mean, how much of an impact do you think you can have because of this higher funding costs? And related to monetary policy, obviously, I think there’s still visibility, but banks have met with the Central Bank. Do you think the Central Bank is receptive maybe to some comments from the banks? Is there some leeway to potentially flexibilize some of these monetary policies to provide a little bit more liquidity to the banks in the short term?

Gonzalo Fernandez Covaro: Thank you. Talking about impact, it’s really not that easy to calculate because we are having — the one day rate is changing every day with big swings from one day to the other. So we are trying to capture that. But yes, it could be a couple of hundred basis points. But again, we also don’t — doesn’t know exactly how long. So this is August, but still need to see how it evolves. I mean we always have conversations with Central Bank, and they are very — always very receptive of our comments. And we explain the situation, they understand it. And I mean, we don’t know what they are going to do with future regulations. This is what we have, and we will, of course, comply with all regulations. So they know the situation, they understand it, but they also have superior goal, which is inflation and economy stabilization. So I can’t answer what they’re going to do. What I can say is that we explain the situation that, of course, they understand it.

Alonso Acuna Aramburú: Okay. Great. And maybe a follow-up on asset quality and on cost of risk. I mean, what do you think would be your level of cost of risk? So 3Q should be similar to 2Q? Or do you expect some improvement or not yet until the fourth quarter?

Gonzalo Fernandez Covaro: No, I would say 3Q is a bit higher than second Q, sorry, in total portfolio, I would say, a bit higher than second Q and then stabilizing closer, I would say, last — today it’s 4.4. So we could say — yes, what he said?

Pablo Eduardo Firvida: Cost of risk.

Gonzalo Fernandez Covaro: Cost of risk, sorry. Cost of risk, we are in the range of 8%. Yes, we believe that for the second half, slightly higher than we are seeing now, not dramatically higher, slightly higher.

Operator: Next question from [ Marina Varaji ] with in 9fin.

Unidentified Analyst: So I wanted to go back to NPLs. You provided some color on the consumer portfolio. But I was wondering about the corporate segment. Do you see any deterioration there? And also a second question, what do you think will be the level by year-end?

Gonzalo Fernandez Covaro: I mean in the corporate segment, we are not seeing really big changes. I mean very — I mean, we are coming — we are at 0.7% today, and we’ll see somewhere same amount by the end of the year, slightly up between 0.7% to 1%, but really at very low levels. SMEs also, I mean, with the lending growth, some slight increase, but nothing — I mean, normal behavior due to the increase in lending, but not a systemic problem as we are seeing in the consumer group. And the other question was?

Unidentified Analyst: Where do you see the level of NPLs by the end of the year?

Gonzalo Fernandez Covaro: The level of NPLs, yes, closer to total book closer to 5%.

Operator: Next question from [indiscernible].

Unidentified Analyst: Very quick one. Just again on the NPLs. I think you mentioned that there was a trend in terms of NPL formation from new customers. Can you just confirm that? And also in terms of when the bulk of these NPLs were originated? Are these mostly loans that were originated last year when you had that above average loans growth? Or are we looking at maturities dating back to before then roughly if you could describe the split, that would be very helpful.

Gonzalo Fernandez Covaro: I mean, we couldn’t hear very well. So I will answer what I heard and then otherwise, you can repeat it. I would say that for the personal lending, the worst bulk came between March ’24 to March ’25, which is where we grew faster. And then we started taking actions. On the credit card portfolio, which is not new customer that was existing customers that started to have performance issues, we start seeing that more first quarter of this year and second quarter, but those are more, again, existing customers that start struggling because of less disposable income, et cetera. So it’s different the answer talking — if we talk about personal loans and credit cards. And I don’t know if there was more question, but I couldn’t hear that.

Operator: Next question from Santiago Petri with Franklin Templeton.

Santiago Petri:

Franklin Templeton Investments Corp.: I just want to understand the way of reasoning here because it gives me the impression from your comments that you expect that the volatility in rates is going to diminish once the uncertainty of elections is over. However, I have the impression that the volatility in rates was well before of the political developments and the political events. So I just want to get a clarification if you are allowed to give so on these developments.

Gonzalo Fernandez Covaro: Well, I mean, this — of course, we are doing futurology. So if that word exists, so it’s just an opinion. I mean, I would say that, yes, I understand that this started a bit before. But in an election year, I mean what we believe is that this kind of positive real interest rates, meaning above inflation, very, very high compared with the inflation we have, cannot stay here for much longer because it will start producing impacts in the economy. So — meaning companies or borrowers, et cetera. So — and we — so our expectation, again, talking about our research department is more or less after elections, if the election is what market expects, that could help stabilize the market and also reduce it — go back to trust more in the peso, et cetera, because it means that the government will be able to make all the changes that they want.

Mean — that’s what we expect. But again, this is — I mean, this can change from one to the other, and it’s something — the base case we have built with our research department, but it’s not nothing that we can assure.

Pablo Eduardo Firvida: Hi, Santiago, I would like to add that once both elections are over, the government, meaning the Ministry of Economy and the Central Bank will be more perhaps receptive to change regulations because right now, they want to get to the elections with stability in terms of inflation, FX, volatility. So there could be some changes after that.

Operator: The question-and-answer section is over. We would like to hand the floor back to Mr. Pablo Firvida for the company’s final remarks.

Pablo Eduardo Firvida: Okay. Thank you. Thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Bye-bye.

Gonzalo Fernandez Covaro: Bye-bye.

Operator: Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.