GGAL

Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia fourth quarter 2026 earnings call. This conference is being recorded, and the replay will be available at the company's website at gfgsa.com. We would like to inform you that all attendees will only be listening the conference during the presentation, and then we'll start a question and answer session when further instructions will be provided. 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 laws, and are subject to risk 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 could cause results to differ materially from those expressed in the respective forward-looking statements.

Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia Fourth 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 laws 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.

Thank you. Good morning, everyone. I will make a short introduction, and then Gonzalo Fernández Covaro, our CFO, will have some words. Latest figures indicate that Argentina's economy grew by 4.4% on average during 2025 and the primary surplus stood at 1.4% of GDP with an overall fiscal result of 0.2% of GDP. The National Consumer Price Index recorded a 7.9% increase during the fourth quarter of 2025. Inflation for the year stood at 31.5%, significantly decelerating from the 117.8% recorded in 2024 and reaching its lowest level in 8 years. However, monthly inflation accelerated during the second half of the year and displayed a 2.8% increase in December after having reached lows of 1.5% in May and 1.6% in June. In January 2026, monthly inflation rose to 2.9%, while the year-on-year rate accelerated to 32.4%. On the monetary side, the Central Bank expanded the monetary base by ARS 0.7 trillion in the fourth quarter and by ARS 13.2 trillion over the year, bringing the year-on-year increase to 44.5% as of the end of 2025. In December 2025, the exchange rate averaged ARS 1,448 per dollar, reflecting a 29.5% year-on-year depreciation. As of January 1, 2026, both the floor and the ceiling of the exchange rate band began to adjust monthly in line with the latest available monthly inflation data. In December 2025, the average rate on peso-denominated private sector time deposits for up to 59 days stood at 26.6%, 6.4 percentage points below the December 2024 average. Private sector deposits in pesos averaged ARS 104.1 trillion in December, increasing by 10.6% during the quarter and 40.1% in the last 12 months. Time deposits rose 4.3% during the quarter and 44.8% in the year. Peso-denominated transactional deposits increased 18.3% during the fourth quarter and 35.2% in year-over-year terms. Private sector dollar-denominated deposits amounted to $36.4 billion in December 2025, increasing 11.7% during the quarter and 14.6% in the last 12 months. Peso-denominated loans to the private sector averaged ARS 87.6 trillion in December, showing a 10.4% quarterly increase and a 73% year-over-year rise. Private sector dollar-denominated loans amounted to $18.2 billion, recording a 0.5% quarterly decrease and an 83.6% annual increase. Turning now to Grupo Galicia. Net income for 2025 amounted to ARS 196 billion, 91% lower than in the previous year, which represented a 0.4% return on average assets and a 2.5% return on average shareholders' equity. Excluding integration expenses, the result would have been ARS 333 billion and the ROE 4.2%. The result was mainly due to profits from Galicia Asset Management for ARS 127 billion from Naranja X for ARS 59 billion and from Galicia Seguros for ARS 40 billion, partially offset by ARS 70 billion loss from Banco Galicia. Going to the fourth quarter, net loss amounted to ARS 84 billion as the improvement of the financial margin was more than offset by the impact of asset quality deterioration. In the quarter, Banco Galicia recorded ARS 104 billion loss, Naranja X, ARS 49 billion loss, while Galicia Asset Management and Galicia Seguros posted profits for ARS 36 billion and ARS 27 billion, respectively. This loss represented a minus 0.7% annualized return on average assets and a minus 4.3% return on average shareholders' equity. The net result from Banco Galicia for the fiscal year was negatively affected by the non-recurring expenses related to the merger with HSBC, without which it would have reported ARS 60 billion profit. In addition, during the year, the financial margin was negatively affected by changes in reserve requirement regulations and by a significant increase in interest rate, which had an impact on the cost of funding. At the same time, loan loss provisions increased significantly compared to 2024, mainly due to the increase in the retail-loan-portfolio-delinquency rates. The most relevant factors for the deterioration of asset quality were the abrupt increase in interest rate in real terms, the loss of purchasing power of customers and the disappearance of the dilution effect on the installments related to a lower level of inflation. During the quarter, the bank reported ARS 105 billion loss, decreasing 6% as compared to the loss of the third quarter. Operating income increased, reaching ARS 164 billion, up from the ARS 6 billion recorded in the previous quarter due to higher net operating income driven by an improvement of financial margin, offset by higher loan loss provisions, which still showed an upward trend. Average interest-earning assets reached ARS 25 trillion, 3% higher than in the previous quarter, primarily due to the increase of the average volume of dollar-denominated loans, which grew 9%. In the same period, its yield increased 130 basis points, reaching 31.4%, 39.7% in the Peso Portfolio and 8% in the Dollar Portfolio. Interest-bearing liabilities increased 4% from September 2025, amounting to ARS 22 trillion, primarily due to an increase of the dollar-denominated deposits. During this period, its cost decreased 220 basis points to 14.3%. Net interest income increased 23% when compared to the third quarter because of a 7% increase in interest income and of a 9% decrease of interest expenses. Net fee income increased 4% from the previous quarter, mainly stood out the fees related with bundles of products and the ones of deposit accounts. Net income from financial instruments decreased 3%. Gains from FX quotation difference were 29% higher from the previous quarter, including the results from foreign currency trading and other operating income decreased 8% in the quarter. Provision for loan losses increased 42% in the quarter and 220% when compared to the fourth quarter of 2024. Deterioration that was mainly focused in the retail portfolio in which NPLs rose to 14.3%, up from 3.2% recorded at the end of the previous year, particularly affecting personal loans and credit card financing. Personnel expenses reached ARS 178 billion and were 50% lower than in the previous quarter as during that period, losses for ARS 181 billion were recorded due to the restructuring plan following the acquisition of HSBC business in Argentina. Administrative expenses were 12% higher than in the previous quarter due to a 13% increase of taxes and to a 23% increase in expenses for maintenance and repairment of goods and IT. Other operating expenses increased 10%, mainly due to a 68% higher charge for other provisions. The income tax charge was positive as the pretax net income was a loss. The bank's financing to the private sector reached ARS 21 trillion at the end of the quarter, down 2% in the quarter with peso financing decreasing 1% and dollar-denominated financing down 5%. Deposits reached ARS 26 trillion, 4% higher than the quarter before, mainly due to a 6% increase in dollar-denominated deposits. The bank's estimated market share of loans to the private sector was 14.3%, 50 basis points lower than at the end of the previous quarter, and the market share of deposits from the private sector was 16.2%, 20 basis points lower than in the third quarter of 2025. The bank's liquid assets represented 93.2% of transactional deposits and 59.4% of total deposits, similar levels to those of the previous quarter. As regards to asset quality, the ratio of non-performing loans to total financing ended the quarter at 6.9%, recording a 110 basis points deterioration as compared to the 5.8% of the third quarter. As I mentioned before, the deterioration is mainly related to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 97.4%, down from the 101.5% recorded a quarter ago. As of the end of December 2025, the bank's total regulatory capital ratio reached 25.2%, increasing 310 basis points from the end of the third quarter, while the Tier 1 ratio was 25.1%, up 330 basis points during the same period. In summary, during the fourth quarter, financial margin partially recovered and efficiency improved, but still asset quality and the monetary loss due to inflation had a significant impact on profitability. Despite this, Grupo Financiero Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect an improvement in profitability during 2026. Now Gonzalo Fernández Covaro will make some additional remarks. Thank you.

Thank you, Pablo. Hi, everyone. Well, looking ahead, I mean, we believe Argentina is entering in a phase of stability, more predictable policy framework and renewal potential for great growth. As normalization continues and structural reforms advance, the banking system is expected to play a central role in supporting investment, productive activity and the long-term economic development. So we see a positive trends for the future for the country. Talking about 2026 specifically, we see inflation a bit higher than our first estimation, now at 23% and GDP growing at 3.7%. We're keeping our projections of 25% loan growth for the year, but we see slower pace at the first half and accelerating in the second half, that could put some pressure to our revenues. As we said in prior calls, we expect NPLs in the bank to have their peak in March '26. So during March to be -- to with the peak, but the cost of risk, we are seeing that we already had the peak in the fourth quarter of 2025, and we started to see credit losses charges to the P&L to decrease in the first quarter of 2026 in the bank. In Naranja X, same trend, but with some slower pace, but also same trend. We expect to have the benefit of the restructuring made last year after the HSBC acquisition and to continue to improve our efficiency ratios and to capture those positive effects during 2026. We are keeping our ROE guidance for 2026 in the low-double-digit range, I would say, between 10% and 11% going from low to high during the year. And regarding dividend payments, we are proposing a payment of ARS 190 billion, which ARS 40 billion are subject to Central Bank approval as usual. So with that, I mean, we are open for questions.

[Operator Instructions] Our first question is from Mr. Brian Flores with Citi.

Gonzalo, Pablo. Gonzalo, just a quick follow-up on the 2026 guidance. So basically, you're maintaining around 25% real year-over-year growth in deposits should be a bit lower. I think the last notion you provided was around 20%. So I just wanted to confirm if these ranges are still value.

Yes, we said deposit between 15% and 20%, but close to not material changes, I would say.

And then something that caught our attention here is that we saw a strong maybe revision of the growth strategy, right? Because you were growing very fast in the first 3 quarters and you slowed down significantly in the last quarter. Just wanted to check if you have changed your focus on growth, if we should see maybe Galicia losing a bit of market share in 2026 as this asset quality is digested? Or do you think you will defend and keep it steady during 2026?

No. I mean our goal is to keep market share and also increase it -- try to increase it. But I would say that maybe at a slower pace, as I said before, in the first half and accelerating in the second half. I mean, in the last quarter, yes, I mean, you saw mainly a slower pace in the consumer lending. We still in the same scenario in the first quarter. But until we see that it is the right time to accelerate again, that will be, we assume later in the quarters. But in the whole year, we expect really to defend market share and to grow market share. In terms of commercial, we have lending, we have been seeing some lower demand from customers. But there, as you know, our NPLs in the commercial portfolio in the wholesale portfolio are okay. But we are working with our customers and trying to accelerate commercial lending where we see also a lot of opportunities. But to summarize the answer, the idea is to continue protecting defending market share. And -- but as we said, we see lower growth in the first half, I would say, and higher growth in the second half of the year.

If I may, just a very quick follow-up. So in terms of potential catalysts, do you think the recovery could come more from the macro filtering to the micro, or do you think regulatory -- this is more on the regulatory side than on the economic side?

I would say that the macro should start accelerating impacting the micro. That's something that we haven't seen maybe last year a lot. But we are expecting that the macro -- I mean, I think it's a combination. We, of course, expect the macro to start accelerating the micro at some point, and we believe that the government should take measures to do that because it's what country needs. From regulatory side, I mean, we don't know what will happen. So we are not betting on changes on the regulatory side. Of course, at some point, they may come, but that's something that we cannot manage. So we are not betting on that one.

Our next question comes from Tito Labarta with Goldman Sachs.

My question, you mentioned already provisioning levels should begin to come down in 1Q, although this quarter was a bit higher than expected, and we're still seeing that deterioration in asset quality. I guess how quickly can it come down? And what does give you that comfort that you maintain the loan growth guidance, but that credit quality should improve sufficiently to be able to grow at a faster pace in the second half of the year? Is there anything that you need to see? Or do you think it's just getting through the cycle another quarter or 2 and things should get better? Or any other -- any risk to that?

I mean, of course, that's something that we are assessing and monitoring. Anyway, still 25% is lower than the pace that we have been coming in the last year. So it's a deceleration from what we were coming -- so it's not that we keeping the growth of the prior years. But I mean, it's -- we think that is part of the cycle, as you said. We are starting, of course, to focus in different scores and different segments and that's where we're focusing so far our growth, and that's starting to show. Of course, it's lower than what we were happening in the first half of last year. But we believe that 2 things. First, the cycle is going -- is passing. And also, as I said to Brian before, we believe that the -- at some point, the economy, the current economy -- the growth in the economy should start impacting the micro, and we should start seeing activity to rebound in different sectors. And we should see not in every sector, but we, of course, are monitoring niches of customers and groups of customers where we will focus. So we believe that, that should come. Of course, that if the economy doesn't impact the micro and we don't see growth impacting the activity, well, of course, that would be more difficult. But we expect that, that should happen, and that's where we are seeing the growth -- that's why we are maintaining the growth.

Okay. No, that's helpful. And just on the cost of risk because it was a little bit elevated, you compared to the last quarter, and you said it should, I guess, beginning to improve already in 1Q. But how -- can you get back to the low-double-digits, high-single-digits maybe by the end of the year? Just sort of what kind of magnitude of improvement should we expect from here on the cost of risk?

Cost of risk, we are seeing to end the year 8%, I would say, for the 12 months of the year of 2026. The last quarter was -- I am talking about the bank. Last quarter was 12.5%. So we are expecting that -- and the year was like 10%, 10.5% this year -- sorry, 2025 full-year, 12.5% in the last quarter, which is the highest, and we expect to end '26 in 8%, that would be the projection we are managing, and we started to see that in the -- we made some updates of our models, the variables, as you know, you need to do every year. In the fourth quarter, that contributed also in the growth of the charges. So that's done, and we don't expect -- we expect that our next update that we need to be making by the end of this year won't be increasing charges. So that also explains the peak on the last quarter.

Our next question comes from Pedro Offenhenden with Latin Securities.

I wanted to ask on cost. Should we expect some restructuring or acquisition or integration costs throughout the year or the one-offs are largely behind that?

One-offs are largely behind, as you said. We continue, of course, looking for the right size of the organization and trying to make our organization more efficient. So we may see some things here and there, but nothing material or that will be treated as one-off as last year. So from now on, everything we do is part of our normal operations. So we won't have any big impact like the ones we had last year.

And do you have some target on efficiency or administrative expenses growth for the year?

I mean we expect to see -- I mean, a reduction of around 10% to 11% year-over-year, excluding the one-off of last year. Nevertheless, if you consider the one-off of last year, the reduction will be higher. But excluding the one-off in the expense line of last year, we see a reduction of around 10% to 11% year-over-year, and we see efficiency a bit below 40% for the year.

Our next question comes from Yuri Fernandes with JPMorgan.

No, very briefly on margins. If you can help us understand a little bit the trajectory because I guess the risk-adjusted message is clear, right? This was likely the peak and NPLs still could deteriorate a little bit in the first quarter, but the cost of risk is lower. But I'd like to understand the margins because if your cost of risk improves, maybe we could see better risk-adjusted NIMs this year. So maybe just asking, could we see more stable or not? Like what is the view given the mix shift towards commercial lending? And then my second question is regarding -- I think like there are 2 big debates in Argentina, right? One is the ROE recovery -- and the second one is growth, right? Like when growth will pick up, like could we see more than 20% real growth or not? How confident you are on those 2? Like if you were to pick just one for 2026, are you more comfortable that ROEs, they should recover to more normalized level? Or are you more comfortable with growth?

Okay. Let's go. I think the first question was NIMs. I mean we see -- as you know, the last 4 quarter, we saw December NIMs recuperating. Remember that October, November were still recovering from the higher -- the spike in interest rates of the elections period. We see the first -- for the year, we see around 16.5% the margins for the bank. Total margin for the bank 16.4%, maybe starting a bit higher around 17%, 18% and ending in 16% during the year. But on average for the year, with the mix we are expecting, we see margins around 16.4% for the year. I mean talking about growth and ROEs, I mean, I would say that we are, I would say, determined to protect our share in the market. So we are focusing a lot in -- I mean, it's difficult to answer which are -- with the ones are more sure in an economy that is still recovering and that we still depend on the economy evolution for the growth, of course, I mean, we need the economy to grows as expected and that the macro impacts the micro as we were saying before, and that families should salaries in real terms starts to recovering, which we expect that to happen, but it's something that we depend -- so it cannot be guaranteed. So I would say that our guidance is -- we maintain the guidance because we believe we can achieve both. But of course, we depend on the -- how the economy evolves and not having any surprise like we have, for example, last year in the third quarter with the interest rate spike or stuff like that. I would say that still, it depend on inflation. Remember that inflation accounting for Argentine banks is a big thing. The lower the inflation comes and interest rates goes down, I would say that in relative terms, the higher the impact is when we compare with other banks in the region, for example, because at some point, we may end with an inflation of 15% or 12% and still booking inflation accounting, where other countries with 8% inflation are not booking it. So -- and if you see, it's a big portion of our P&L. So at some point, when that disappear, I would say that hopefully, in 2028, that will help the Argentine financial system to improve ROE significantly. But on top of that, I would say that we can get to ROE levels above 15% next year. So low-double-digits this year, but including inflation accounting, we can achieve above 15% next year. And after 2028 without inflation accounting, I would say that the consolidation of the higher ROEs will be easier and more stable for the banks in Argentina because you won't have that drag on the inflation accounting that as you know, it's a big burden for us. So in summary, I would say that we are -- we think that we can maintain both. But of course, in both cases, we depend on how the economy continues also in the growth in the top line, but also in the NPLs and the cost of risk that, of course, we are counting this to continue to improve because we see the economy growing and the families to -- with enough disposable income, et cetera, et cetera.

If I may, just on the growth, just to touch on deposits. I think the guidance is 15% to 20%, right? Can you break down dollar and pesos on this? And I don't know like we have another tax kind of flexibilization, right? Like the dollar under the mattress kind of the date. Can this be helpful for deposits to grow this year? So just checking if funding could be another part of the equation for growth.

Yes. I mean regarding the dollar deposit growth, we may see something with this change in the legislation. We don't expect to be as high as the prior effect that we had with the Tax Amnesty that we have between last year and the year before, but some effect it may have. Remember that today, our dollar deposits are almost half of our deposits. Our goal, of course, is to get more profits out of the dollar. So we are seeing how to get more margins on those. I mean, trying to increase the dollar lending. But as you know, we have some restrictions in terms of who we can lend, but that's something that we are focusing a lot because it's increased. I don't know, Pablo, if you remember the growth divided by dollar deposits and peso deposits?

It was -- basically, we concentrated in the peso one around 20%. Dollars is more sensitive to political environment, this type of legislation, as you said. And as we are not really making a good profit on dollar deposits we really don't pay that much attention in a way. We forecast more the peso financing and funding more than the dollar one that perhaps is also -- we cannot manage it as much as the peso funding. The peso was 20%, the dollar, I think it was something like 15%, but they take it as a bulk number.

Our next question comes from Mario Estrella with Itau.

Well, I guess you already answered with the evolution for the next quarters. I believe well, the next quarter is going to be relatively better than 2025, going from lower ROE to higher as we move towards the end of the year, right? And I understood that the drivers for that, of course, is going to be less pressure on the cost of risk side. But because, I mean, the full quarter results, I mean, in terms of NII, I believe they weren't that bad, I would say. So my question is, I mean, with the inflation trend that we've seen, the first quarter was more inflationary than expected. I mean, what are the downside risk that you see for your guidance if inflation keeps surprising in the upside right? Taking into account that monetary correction loss that the fourth quarter was actually higher than in the third one, right? So that kind of shows you the potential downside risk that we can see from much inflation -- for more inflation, right?

Yes. I mean the downside, of course, as you just mentioned, is more inflation that, of course, affects our balance sheet. So that could be -- if inflation is higher than expected, that could be a downside. And I would say that we are focusing all our efforts in improving the cost of risk. As you can see easily from our results, margins are okay. I mean costs are okay. I mean, efficiency, but of course, that the thing that is putting some sticks in the wheel for profitability is the cost of risk. So that's main focus we have. So I mean -- and that, of course, is for the good and for the bad. I mean we have a lot of room for improvement there. But also if the improvement is lower than we will see an improvement. I mean that we cannot guarantee anything, but my point is we are seeing the improvement. I would say that the risk could be that the improvement is at a slower pace than expected, and that could impact results, not getting the improvements in as fast as we expect during the year. I would say that could be a downward risk that we're facing. We -- so far, January, we came what we are expecting. But of course, the year is long, and we depend on a lot of things on how economy evolves, et cetera, et cetera, that I mentioned before. So on the other hand, top line is important. I mean even though margins are still healthy, we depend, of course, in growth and growing the top line. And of course, that if we don't see the demand of lending because the economy has any deceleration or whatever, well, that could also -- I would say that both -- those 2 could be downward risks. It's not our base case. We are not -- we are expecting that the economy should help on that. But of course, those 2 are downward risk. In the cost side, I think we are okay. We have done a good job in restructuring. As you know, last year, more than 2,000 people from the HSBC acquisition. Of course, we continue to look for more alternatives to continue to improve efficiency. So we continue in that work to always find and adjust the rightsizing of the organization. But I think those are more predictable or manageable by us. The other 2 top line and NPLs, of cost of risk. In our base case, those should come as expected. But of course, if we have different evolution of the economy and also as we were discussing before, how the macro impacts in the micro, we need to start seeing the economic activity in more sectors moves faster. Well, that could be a downward risk, of course.

I understood that the ROE evolution for this year will be something around high-single-digits. And then 2027 something around 15%, right? I mean, based on improvement in asset quality, right? Is that right?

Yes, yes. This year, we're saying low-double-digits or high single is close. So you're right? But the idea is between 10% and 11% this year and next year, around 15% or above and to stabilize those in 2028 without inflation accounting. But what you are in the spot of what you just described, yes.

Our next question comes from Bruno Kenji with UBS.

It would be a follow-up regarding the recovery that you expected for results next -- this year. When we look to Naranja X and lower ROE levels that we saw in those fourth quarter results, should the recovery on the metrics such as NPL and cost of risk be on the same pace of the bank or it could have a little delay in terms of the recovery? And if that and also reflects on the ROEs, do you think that there might be a lower acceleration of loans considering the portfolio of Naranja X for the first half and then an opportunity to have a quicker recovery in second quarter if the economies have some space for personal loans and retail when we compare to the bank?

Yes. I would say that we are seeing improvements in NPLs at Naranja X, albeit at a slower pace than the bank. Nevertheless, that what we are seeing, but still expect also improving during the year. And the scenario -- the growth scenario is similar to the bank. We are seeing also higher growth in the second half. As you know, we still are stabilizing the portfolio in Naranja, which is, of course, 100% consumer, so we don't have a commercial portfolio to go there. But we are growing, of course, selectively growing, but at a slower pace during the first months of the year, and we expect us in the bank to regain as we stabilize the portfolio, regain the growth, the faster growth. We will grow, of course, but the faster growth closer to the midterm of the year or something like that.

Our next question is from Santiago Petri with Franklin Templeton.

Can you help us understand in which segments are you expecting to grow this year, this 20%, 25%? Is it commercial, consumer? And within commercial, which sectors do you see that you can lend to?

I mean we are growing -- I mean, I would say that we were growing in the first half. Today, the mix is more 45% consumer, 55% companies in the toll in the bank, our mix. I would say the first half, we are focusing a bit more in commercial. So maybe by the end of the year, we will maybe 60%-40%. So this year, we may see more growth in the commercial and the consumer. But of course, we are growing -- we are going to grow both portfolio, but more towards the commercial portfolio, mainly because in the first half, we are -- as well, we are lending at a higher pace than in the consumer side, as I said before. In the commercial portfolio, of course, we are picking segments, I mean, that are less affected or not affected by the change in the economics or the imports opening and everything we know that it is suffering. We are strong and we are focusing a lot in the agribusiness. As you know, we are one of the main banks in that sector, and we continue to do that and our expectations in this year to continue strongly there. We are also lending in the oil and gas sector, not just the big loans, but because that's local bank doesn't have the balance sheet, but also all the supply chain and all the value chain in oil and gas. In mining, we are also making deals with supply chain in that sector. We see -- we also see the automotive industry doing okay. So we are also focusing on that and part of the value chain. So we have different -- we divided our wholesale operations in verticals. We have oil and gas, we have automotive, we have agribusiness, and we are going through all the value chains. We see commerce, retail commerce that at some point, some sectors not doing that good. So we are not growing in those ones. But we are doing a very good and deep analysis in which sectors we believe that are going to be the winners in these changes that the economy is doing or at least in this transition. And the sectors I mentioned are ones that we see growth and there are others like technologicals and a lot of SMEs that do services, provide services that we see them strong that we are also helping them in the growth path. So we see room for growth in the commercial portfolio. Of course, that, as you know, there are sectors that are not doing good, and we have them very clear, and we are not growing those ones.

A follow-up, if I may. There are some conversations or I don't know how to name it, about the possibility of banks expanding their U.S. dollar lending to non-U.S. dollar revenue-generating entities. Is this something that you see with, are you comfortable with this change in regulation?

I mean, two things. Regulation could change then we'll see if we apply or we use it or not. I mean, I would say that for us, that would be on a very cautious way. We don't believe that going massive in lending dollars to non-dollar producer will be something safe. So of course, that will be more focused in the Commercial side, the Wholesale side. And if we have big local companies that are very strong or international, but big companies that even though they are not dollar producer, we see that they could -- they are a devaluation or whatever, well, that would be on a case-by-case basis. But we are not seeing anything massive that we will start lending massively if the regulation change massively to non-dollar producers. So my answer would be, we will evaluate it cautiously and do it on a case-by-case basis, but nothing massive. At least is what we are seeing now with this year, with the -- how the economy is evolving in the future, if Argentine start being more dollarized or how the dollar start being more important in the daily trading, well, we may change our mind. But so far, our first reaction is that if this happen, we will do it on a selective basis and cautiously basis.

The question and answer session is over. We would like to hand the floor back to Pablo Firvida for the company's final remarks.

Okay. Thank you, everybody, for attending this call. As always, we are available if you have any further questions. Good morning and good afternoon. Bye-bye.

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

Good morning, ladies and gentlemen, and welcome to Grupo Financiero Galicia Third 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 provision of the U.S. federal securities law and are subject to risks, uncertainties that could actual results would 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; and Gonzalo Fernandez Covaro, CFO. Please Mr. Firvida, you may begin your conference.

Thank you. Good morning, and welcome to this conference call. According to the monthly indicator for economic activity, MI, the Argentine economy recorded a 5% year-over-year increase during September. In year-to-date terms, the economic expansion reached 5.2%. During the third quarter of 2025, the primary surplus reached 0.5% of GDP and an overall surplus of 0.1% of GDP was reported. This result was explained by revenues increasing by 32.8% year-over-year, whereas primary spending rose 30.6%. During the first 10 months of 2025, the primary balance stood at 1.4%, while the financial balance amounted to 0.5% of GDP. The national consumer price index accumulated a 6% increase during the third quarter of 2025 and 24.8% year-to-date increase as of October. After 4 consecutive months below the 2% mark, headline inflation was 2.1% in September and 2.3% in October, accumulating 31.3% in the last 12 months, the lowest level since July 2018. The third quarter was marked by high volatility in the months leading up to the midterm elections. The exchange rate came under pressure at times nearing the upper limit of the floating band which prompted the Central Bank to step in with foreign exchange sales. Nonetheless, the exchange rate averaged ARS 1,400 per dollar in September 2025, a 15.6% devaluation compared to June 2025. Meanwhile, peso-denominated interest rates saw sharp swings, reflecting increased uncertainty and liquidity shift. In fact, the average rate on peso-denominated private sector time deposits for up to 59 days, averaged 48.7% in September 2025, up 16.5 percentage points from June 2025 levels. Private sector deposits in pesos averaged ARS 94.1 trillion in September, increasing by 5.6% during the quarter and 53% in the last 12 months. Time deposits in pesos rose 13.1% during the quarter and 76.3% in the year. Peso-denominated transactional deposits decreased 2.4% during the third quarter, but increased 31.5% in year-over-year terms. Private sector dollar-denominated deposits amounted to $32.6 billion in September 2025, increasing 7.2% during the quarter and rising 38.9% in the last 12 months. Peso-denominated loans to the private sector averaged ARS 79.3 trillion in September, showing a 9.7% quarterly increase and a 105.4% year-over-year. Private sector dollar-denominated loans amounted to $18.3 billion, recording a 15.8% quarterly growth and 153.4% annual increase. Turning now to Grupo Financiero Galicia. Net loss for the quarter amounted to ARS 87.7 billion, due to losses from Banco Galicia for ARS 104 billion, from Naranja X for ARS 6 billion and from Galicia Seguros for ARS 12 billion, partially offset by the profits from Galicia Asset Management for ARS 25 billion. This loss represented a minus 0.8% annualized return on average assets and a minus 4.7% return on average shareholders' equity, while accumulated annualized figures for the fiscal year reached 0.9% and 4.7%, respectively. The quarter includes extraordinary restructuring expenses associated with the merger with HSBC for ARS 105.3 billion net of income tax. The quarter ROE without the extraordinary expenses would have been 1%, and the 9 months ROE 6.9%. The result from Banco Galicia included ARS 101.1 billion of extraordinary expenses, and in addition, were 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. Together with a decrease of financial margin associated to an environment of high interest rates and regulatory increase of reserve requirements. It is also worth noting that most of the comparisons will be made against the second quarter of this fiscal year as figures for the third quarter of 2024 do not include information about the acquired business of the former HSBC Argentina. Net operating income decreased 23% and net interest income decreased 10%. Net results from financial instruments were down 89%, and loan loss provisions increased 26%, which were partially offset by a 9% growth of net fee income and a 12% increase profit from gold and FX quotation differences. Average interest earning assets reached ARS 22.7 trillion, 8% higher than in the previous quarter, primarily due to the increase of the average portfolio of loans in, 5% in pesos and 27% in dollars. In the same period, its yield decreased 259 basis points, reaching 30.1%. Interest-bearing liabilities increased 27% from June 2025, amounting to ARS 19.9 trillion, primarily due to the increase of time deposits in pesos and of saving accounts in foreign currency. During this period, its cost increased 88 basis points to 16.5%. Net interest income decreased 10% when compared to the second quarter because of a 35% increase in interest expenses due to a 36% higher interest rate on time deposits, partially offset by a 7% increase of interest income, mainly due to a 12% higher interest on loans and other financing to the private sector. Net fee income increased 9% from the previous quarter due to a 6% higher income from credit card fees and up 19% from fees on deposits. Net income from financial instruments decreased 89% due to an 88% lower result from government securities. Gains from FX quotation differences were 12% higher from the year ago quarter, including the results from foreign currency trading following the lifting of exchange restrictions. Other operating income increased 11% in the quarter, mainly due to the 45% increase in other income, primarily corresponding to credits recovered. Provision for loan losses increased 26% due to the growth of the financing portfolio and to an increase in delinquency that is limited to personal loans and credit card financing to individuals in pesos. Personnel expenses were 83% higher than in the second quarter due to the voluntary retirement program recorded in connection with the restructuring plan following the acquisition of HSBC's business in Argentina. Administrative expenses were 11% lower than in the previous quarter due to a 32% decrease of expenses for maintenance and repairment of goods and IT, and to 14% decrease of higher administrative services. Other operating expenses increased 5% due to a 7% higher turnover tax. Results from the net monetary position decreased 9% from the second quarter following the declining evolution of inflation. The income tax charge was positive as the pretax net income was a loss. Demand financing to the private sector reached ARS 20.4 trillion at the end of the quarter, up 14% in the last 3 months, with peso financing increasing by 5% and dollar-denominated financing growing 35%. Net exposure to the public sector was 3% down in the previous -- comparing with the previous quarter, primarily due to a 38% decrease in government securities in pesos measured at fair value through OCI, offset by an increase in government securities in pesos at amortized cost. Deposits reached ARS 22.9 trillion, 8% higher than the quarter before, mainly due to a 26% increase in dollar-denominated deposits, mainly time deposits that were up 72%. The bank's estimated market share of loans to the private sector was 14.8%, 30 basis points higher than at the end of the previous quarter and the market share of deposits from the private sector was 16.4%, 40 basis points higher than in the second quarter of 2025. The bank's liquid assets represented 94.5% transactional deposits and 59.2% of total deposits compared to 94.3% and 65.2%, respectively, from a quarter before. As regards to asset quality, the ratio of nonperforming loans to total financing ended the quarter at 5.8%, recording a 140 basis points deterioration as compared to the 4.4% of the second quarter. 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 105%, down 16.4 percentage points from the 117.9% recorded a quarter ago. As of September 2025, the bank's total regulatory capital ratio reached 22.1%, decreasing 160 basis points from the end of the second quarter, while the Tier 1 ratio was 21.8%, down 140 basis points during the same period. In summary, the third quarter was marked by high political effects and monetary volatility and negatively affected margins and asset quality. And in addition, the results were affected by very high onetime expense due to the restructuring of the merged banks. Despite this, Grupo Financiero Galicia was saving to keep liquidity and solvency metrics healthy levels, and we expect an improvement in profitability during the fourth quarter and next year. And now Gonzalo Fernandez Covaro will make some additional remarks.

Hi, everyone. Well, continue with what we see for the future. I mean regarding how we see the rest of the year, October continued with low margins due to the high interest rate that we saw in the third quarter. But we are already seeing a vast improvement in margins in November. We are already really seeing margins at the same level than second quarter and the first half of the year in August -- in November, and we expect the same for December. Portfolio performance still needs some time to get back on track, so we still see a deterioration in the fourth quarter at a lower trend than before, but still some. So overall, bank will be better, will improve returns, mainly due to the margin improvement. But Naranja X, we have some headwinds in terms of portfolio performance up. With this mix, we are seeing the ROE for the full year 2025, around 4%, the reported one. And if we exclude the nonrecurring integration costs that we mainly booked in the third quarter we should be around 6%. Talking about 2026, we're expecting an ROE in the low teens range, I would say, between 11% and 12%. Of course, a lot of moving targets for next year. We will be updating this guidance in further quarters. But this is our best case scenario to be around 11% to 12%. Margins, we'll see improving them in the first months of the year, together, what we are seeing in November, December, then some kind of light reduction as a consequence of the rate reduction, but not really high, the reduction. So we'll still see healthy margins next year, I would say, in the levels of the second quarter. NPLs, we expect a peak on NPLs in March of next year, but then improving as a good portfolio that we are originating is gaining weight in our mix and that we will end the year with NPLs better than the run rate that we are having now. And regarding costs, we are also seeing a reduction in year-over-year in cost because of all the restructuring we have done. And you saw the restructuring costs we booked in the third quarter and that generated 1,000 heads reduction in the group quarter-over-quarter. And that's -- if we add up all the year, we have a headcount reduction of 2,000 heads for the year. So that is, of course, generating reductions -- cost reduction for next year. We are seeing already fourth quarter of next year, our projection shows, our fourth quarter of next year ROE run rate already at 15% level. So that put us with a solid base to start '27 and deliver ROEs above 15% is the target ROE that we are aiming for the longer future. So with that, I mean, we are also open for any questions you may have.

[Operator Instructions] Our first question comes from Daniel Vaz from Safra.

I'm looking at your capital ratio of '21 at the group level, and it was down 120 bps from the second quarter. I'm just wondering if you said that your cohorts -- new cohorts of origination are getting better, so you expect a peak in NPL in March. So -- but still your ROE is super low compared to your targets, right? So how do you expect that capital would be ranging in this scenario, what's your bottom of capital that you would like to work as a risk-taking level for the group or for the controller, which is this bottom that you would like to limit your capital? And if you need at some point to reduce your origination and how you're dealing with the new originations compared to your beginning of the year? Because at the beginning of the year, the longer duration, I think it hurt your margins, mainly your cost of risk. But when we compare to other players, other fintechs, their duration is faster to adjust. So both these 2 questions here blend into each other. So first, capital and how is your origination compared to your duration in the beginning of the year going right now?

Regarding capital, our capital also was impacted by the reserve in OCI, the other comprehensive income with the bonds that are valuated at hold to collect and sale that you have a reserve in equity that moves between the accrued income in the bonds and the market -- mark-to-market. But as you know, in the third quarter, there was a big reduction in bond prices. So that we had a ARS 160 billion negative reserve in equity due to those bonds that affects, of course, the equity ratio. On October, we -- our Tier 1 ratio in October is already at 24.5% in the -- talking about the bank. And that's, of course, because now this OCI reserve is slightly positive. So it has an improvement of ARS 160 billion in 1 month because as you know, after the elections, the rally that all the bonds have. So really, with these levels of capital, we are comfortable. We -- I would say that our minimum appetite to operate is 13.5%, 13%, 13.5%, but we don't expect to get close to that in the near future. We believe that with the projection we have, we have enough capital until the -- at least until the end of 2027. So -- and without any limitation for growth. So I would say that's -- of course, that's something that we monitor and we will be updating regularly. But with this -- now that the reserves of the bonds are stabilized, we don't see really the need for capital or any restriction in the growth of our loan book, at least the whole next year and 2027. Regarding the second question, I think I didn't get it very well.

Origination of loans and maturity of the loans.

I mean, we continue to originate, I mean, both commercial and consumer lending. We have put some slowdown in the consumer lending due to the portfolio quality, as you have seen. First mortgages will reduce significantly the origination of mortgages. In that case, not because of quality, but because of -- there is not any securitization market. And as you know, we cannot be putting 30-year lending without any securitization market where we can offload those loans. But we continue -- in the consumer sector, we continue lending personal loans that may have a duration of 2 years, 2.5 years. And now we are also increasing car loans or auto loans that same duration. Talking about commercial financing, we are still originating a very short duration. Slightly, we start to increase duration because the demand was not there. Now with after elections, with Argentina stabilizing and with a lot of growth potential in the country, we are expecting to see more projects for our clients to finance longer terms, but that's not yet happening, but we are expecting that next year, the duration in the commercial lending should be getting longer than what we have today.

Our next question comes from Ernesto Gabilondo from Bank of America.

My first one is on your loan growth expectations. What should we think for next year? If you can give us some color on the expectations per segment? And also, I believe there have been some announcements on private investments in Argentina. Have you quantified an amount? Or can you give us like some direction or color in which regions and sectors are you perceiving these new private investments? And how would you be willing to participate through corporate loans, as you mentioned, SME loans? That will be very helpful. Then my second question is on asset quality. I believe -- I'm just double checking, you mentioned NPL ratio could be peaking by March next year. And if that is correct, if you can provide any potential range? And if you are seeing the same trend on the cost of risk, if you're expecting cost of risk also to peak by March next year? And how should we think overall for the cost of risk next year?

Thank you for the question. I mean talking about, yes, the color of next year, we see -- I mean, growing lending in 25%, more or less in real terms. I mean we want to continue gaining market share. So of course, this number will be adjusting according how the market grow. We see market growing around 20%, 22% in real terms, of course. We -- in terms of sectors, yes, we are growing -- I mean, I think that the commercial lending will be capturing a lot of attention. I mean, as you said, there are a lot of projects and investments in the country that we have a lot of customers already starting to talk about it. We also want to continue growing the consumer lending with, of course, the new origination tools and the models adjusted in order to book better credits. But we will start a bit slower in the first month, start continue a bit slower as we are having this month and then restart the full growth as we see that the quality is improving. Talking about commercial lending, yes, we are seeing a lot of the investment mainly in the oil and gas sector. As you know, Vaca Muerta continues with a lot of attention in the mining segment -- I mean, sector, sorry, copper, lithium, a lot of focus there also. We are very -- also very present in the agri business. And this year, the agri business is going to have a very good harvest. And we are anticipating good investments for next year also in this sector that we will be also joining there. And we are also starting to see M&A starting to move, local M&A, companies, some privatizations that may come close that we don't have yet the names, but we're starting to hear rumors that some may not be huge privatization, but yes, smaller companies that can come to the market. And of course, the idea for us is to be close to our customers there. Some of those projects are going to be too big for the local financial market to finance because when we talk about oil and gas, the amounts are huge. But we will always be there to participate with smaller tickets or to be there in transactions that local balance sheets can afford. So again, we are very close to our commercial customers. And really, we see a sentiment on appetite for Argentina, on appetite for investing. And that's where we are seeing that our next year, we are going to be growing faster than the market, and that will help also to improve the returns year-over-year. Talking about NPLs, yes, we are expecting our peak on NPLs around March next year. We are seeing that the peak would be around 7%, 6%, 7% -- and the cost of risk, yes, again, same thing. We are seeing also peaking next year in March for the bank, I'm talking, and we'll see more or less cost of risk between 9% and 10% the peak. Then going down those -- both ratios to end the year at lower numbers that is what we -- that we expect. I mean we are already seeing the new harvest of consumer lending at much better behavior than the old ones. We still need the time to digest the older portfolio and see the results that will come after, I would say, second, third and fourth quarter of next year.

Super helpful, Gonzalo. Just another question in terms of this potential growth that you can see for the loan book next year. Another competitor just mentioned the possibility to tap the markets next year. Is this something that you are also exploring?

Bonds or equity?

In bonds.

Equity. I mean, the financing or equity?

Yes, debt financing.

I mean, yes, of course, it's something that we have always in our alternatives need to see how -- the windows are starting to open. Really, we don't -- we are not seeing now the need. But of course, that's something that we are always evaluating. And we need to see, of course, the equation, the profitability equation of the cost that the market could offer at some point. But yes, mainly considering larger tickets or the projects that they may come, yes, definitely, it's an alternative that we consider very seriously.

Our next question comes from Brian Flores from Citi.

I just wanted the first question to be a clarification on the ROE trend because you mentioned the peaks of NPLs and asset quality, as you mentioned, cost of risk by March, right, of 2026. So you mentioned 11% to 12% in terms of real ROE for 2026 with reaching the 15% in the fourth quarter. So would that mean we should see a mid- to high single digit in the first half? Just thinking about the speed of the recovery, right? Apparently, it seems to be a very gradual recovery. Just wanted to check on that trend, Gonzalo. And then my second question is perhaps a follow-up on Ernesto because I think we're all thinking about external funding, right? But you have perhaps one of the best franchises in Argentina. meaning that deposits are very, very relevant. So I just wanted to understand if the visible funding cost advantage that you have demonstrated in previous quarters should continue? Or do you think the -- I would say, the funding cost war should, I would say, increase or deepen in 2026?

No, thank you. So first question about ROE trend. I mean, yes, I mean, we see first quarter slower. I mean, I would say that the numbers you mentioned could be right. I mean, we see a recovery first quarter will still be -- I mean, margins, we are going to be already in the first quarter at good levels, but we will still have some kind of heavy burden of NPLs still the last month of that and then starting to recap in the third quarter. So I would say that, yes, lower ROE in the fourth quarter and then recapping the trend until the 15 in the fourth quarter and continue with that in 2027. But yes, your assumption is right in terms of ROE evolution. Remember that the group has also Naranja and the bank and Naranja also needs to improve that portfolio performance. That's why also we need a couple of months from next year in order to be able just to go above 2 digits in ROE. Talking about the funding, what's the other one? -- funding. I would say that, yes, that's why my question was -- I mean, our idea is -- my answer before to Ernesto was, yes, we are analyzing potential debt in the market, but we always look first at our deposit base. We see some possibilities for next year. In deposits, we see that we -- the market liquidity is coming back. With interest rate reduction, the market will be also more liquid. We see that there may be some changes in regulations for mutual funds that put some limitations for the banks to go to the market to place funds in the market. So they -- that liquidity should come back to banks. As you know, the money markets are a huge holders of funds from deposits from customers in Argentina. And they put part of their deposits in banks, but also they go to the market and place those funds in the market in Cauciones. And next -- according to next year, they should be able to put more money of those in the bank, and that should also provide more liquidity to banks to lend. That will be another source of liquidity for banks. So -- we are aiming to increase our deposits to gain market share in deposits. All our business lines have that mandate because we consider it the more stable funding and the cheaper one or the more the cost-efficient one. But of course, depending on the speed of the credit growth, we may need to go to the market. And we need to do it, we'll do it. But our first priority is deposit, and we really believe that deposit next year should start to grow better than this year. I wouldn't say same pace than lending, but better than this year.

Perfect, Gonzalo. I think the last guidance you mentioned in the second quarter on deposit growth was around 35% in real terms. So I just wanted to check if you are revising this number. And also, I understand, as you mentioned, the deposit growth for 2026 is going to be lower than the portfolio.

Yes. For this year, I mean, we are keeping, yes, those guidance for growth. For next year, we are seeing more like 20% in real terms deposits, 25% lending. But again, that's something -- I mean, a lot of moving targets for next year. So we will be updating those guidance because we'll see how -- we need to see how the country is changing. 1 month ago, we were with a lot of volatility. Now stabilizing interest rate reductions. So we need to see how everything comes together, but that's our -- so far, it's our assumption around 20% for next year.

Our next question comes from Tito Labarta from Goldman Sachs.

A couple of questions also. I guess, just on the Naranja, you mentioned Gonzalo that needs to recover as well. Do you think NPLs peaked there also in 1Q? Or how do you see the evolution of asset quality in Naranja and then also your ability to resume growth at Naranja? And then second question, just on margins, do you think we saw some pressure this quarter, I mean, just given all the liquidity issues in the quarter. Do you think this is the bottom? Should that already begin to recover in 4Q? Or will that take a little bit longer until you start to get the loan growth and asset quality under control, just to think about the evolution of margin in the short term and I guess, thinking about 2026 as well.

Yes. Talking about Naranja, I would say that we are seeing the same -- more or less same amount, same timing for the peaking. I mean, third March, April next year, same and they're also doing a lot of things. Their turnaround, I would say that the, but they have a shorter duration in lending. So they cure their portfolio faster than the bank. So yes, I would say March should be also the peak for them, and we are expecting also an improving on NPLs for Naranja for the rest of the year. Of course, as they go to lower segments, they have bigger swings on the bad, but then on the good at the same time. Talking about...

NIMs.

NIMs margins, yes. Margin, yes, we saw the bottom was October. I mean, I would say fourth quarter still has October, which is 1 month with a low margin. So in the quarter, you still -- in the next quarter, you still see 1/3 of the month, I would say, with a bad margin. I would say October was a bad margin because it was the worst month before the elections, the election month. But then November, really, we are seeing a quick, fast turnaround and fast improving in the margin. And December, I would say it will be 100% at the second quarter levels. So yes, to your question, the bottom was, I would say, October, third quarter and October. But November, December already recapping December already at the same or pre-volatility levels, I would say. So for next year, margins will be at good levels. Of course, then after the second half, slightly reduction because with the continued rate reduction. Today, what we are seeing is our cost of funding reducing significantly now and our lending start to reduce the interest rates at a slower pace because we have already booked longer-term lending at higher rates. So we will enjoy those higher margins first half of next year. And then we may see some slight reduction, but nothing significantly next year yet. So in a summary, yes, the bottom was third quarter and October.

Okay. No, that's helpful, Gonzalo. And just on the reserve requirements, I mean, they've been reducing a little bit. Do you think it's enough now that liquidity is less of an issue? Do you think that they need to reduce the reserve requirements further from here? Or how do you think about that and the impact on your liquidity?

I would say so far, it's -- I mean, so far, in these months, it's okay. The Central Bank, as you know, made some changes in liquidity requirements like last week and that were better, mainly in the calculating the daily calculation, but also they reduced 3.5% the cash encashments that are 0 interest, so that will also give some improve EBITDA margins for banks going forward starting December. This is starting December 1. but they reduced -- so that's not significant for injecting liquidity to the market. But I would say that at some point next year, that may be revisited again by Central Bank because at some point next year, it could be needed. So it's something that I wouldn't say that is needed now or the next 3 months, the next quarter. But at some point, depending on how the market behaves, could be there is an opportunity for a revision on that side.

Our next question comes from Camila Azevedo from UBS.

My question is a follow-up on Ernesto's question on asset quality. I would like to get a better view of the asset quality dynamics during this quarter, mainly between segments. And you said we should end the year with better NPLs than current levels. Could you please share more details on that? So it could be in general terms, what should we expect? And with this, with which coverage ratio would be comfortable going forward?

Sorry, Camila, there was a noise in the middle of the conversation. We couldn't get the first part. Yes, the part of ratio, not the other part.

Sorry. Sure. So I'll repeat the entire question. Like I would like to get a better view on the asset quality dynamics during this quarter and which levels should we expect for the end of the year? You said that we should expect better NPLs. So in general terms, at which levels? And did you get the coverage ratio part?

Yes.

Okay. So that's it.

I mean when we talk about NPL better than the end of next year, not this year, right? I mean this year, we still -- as we said, that the peak will be March next year. So what we are seeing, and this is for the end of 2026, NPLs, I would say, in a range of 4.3%, give or take, more or less 4%, 4.3%, 4.5%. I mean that could be the range of NPLs by the end of '26.

And the coverage?

I didn't get that.

And the coverage, the last number is 101.5%. Really, it comes from the model of expected losses, talking with the credit department, they say that the coverage is beginning to grow, and it's likely that at the end of next year would end up at 110%. But really it's...

When you create -- we grow your book, you create a lot of upfront reserves and that increase your coverage, then you start using those, and that's where we are now. And that when it comes, now we want to stabilize the portfolio and that should start growing again. But now we are in the process of using the upfront reserves that were booked when the portfolio grew a lot. And now we are also accelerated the growth, so you don't have a lot of upfront books because of new loans and you are using what you booked before. It's kind of a mathematical thing. But we are comfortable with the level we have.

Our next question comes from Pedro Offenhenden from Latin Securities.

I wanted to ask if there are any remaining integration costs from the HSBC acquisition that could impact results in the coming quarters?

No. I mean, I would say the restructuring, nothing big. I mean we may have some small thing in the fourth quarter, but regarding systems that we are shutting down, but not restructuring cost, which is the big portion, we booked everything in the third quarter, not just the people that left in the quarter, but also what we plan that the ones start leaving until the end of the year. So everything is booked there. Something very small, not related to restructuring may happen in the fourth quarter related to system, but really small, nothing important.

Our next question comes from Carlos Lopez from HSBC.

First of all, congratulations on how brave you are because you are giving predictions for the ROE for the middle of the year and for the end of the year. And I hope that those forecasts are actually achieved. More concretely, I realize that we have gone through 3 conference calls, and I don't think anybody has told us what their economic assumptions are. What do you expect for inflation, interest rates and the currency for the end of next year? Maybe you have said it and I missed it, sorry for that. And second, in terms of liquidity, your LDR in pesos is around the 100% level and more partial it is because of Naranja. Is there an absolute level beyond which you would rather not go and therefore, you might be able to -- you might be willing to restrict your loan growth until deposits catch up?

In terms of macroeconomic assumptions, we have -- I will tell you the last estimates from our Chief Economist for this year and next year, GDP growth, 4% for this year, 3.7% for next year, inflation ending this year, 30% next year, inflation, 18% and FX 14.10 at the end of this year and 16.10 -- next year, end of next year. And LDR in pesos, loan-to-deposit ratio.

Yes. I mean we -- I mean, as you know, we're talking about first LDR, then we have our LPR, which is the liquidity coverage ratio that we have more than 180%, so very, very liquid there. In loan-to-deposit ratio, we are -- but we are at 99%, 100%, but we are comfort -- we are assuming that our deposits -- peso deposit will continue to grow. And what happened also in the third quarter and in October is a lot of high realization happening in the economy because of what was happening in the election, what was expected in the election. So we saw deposit in pesos to turn into dollars. Now we are starting to see some kind of reverse thing that some of the actors selling the dollars and going back to pesos because they need to operate and they are not expecting a devaluation in the near term at least. So we believe that we have other means to grow deposits or to go to the market. So really, we don't see that as -- even though we monitor that and we want to -- that's why we are putting a lot of focus in deposit growth, but we expect that could -- deposit growth could come with us, and that will help us to continue growing the peso lending. We don't see a constraint in the growth because of that so far.

You don't see that as a constraint?

No.

Okay. And in terms of the dollarization, you're completely right. There has been dollarization both of loans and deposits. You and the other banks are mentioning demand for dollar loans. Should we expect, therefore, further dollarization of the banks on the asset side? And have you started to see or not yet a reduction in demand for dollars? Have you seen actual dollar sales back to pesos?

I mean lending in dollars, yes. I mean, we see in the commercial lending high demand or higher, I would say, demand in dollar lending. So that is continuing, mainly what we are seeing these projects that we are talking about, we expect that to continue. So yes, we have grown a lot of our deposits in dollars starting the tax amnesty that [indiscernible]. And after that, we -- our share in deposits, dollar deposits is higher than our fair share. So we are taking advantage on that. And of course, with the limits, internal limits that we have to lend dollars, et cetera. And we can also go to the market and get dollar debt, which the market is there also. So yes, we expect to continue growing dollar lending, of course, at a moderate rate considering the liquidity limits that we have internally to our dollar deposits. Dollarization, of course, the demand for dollars, I mean, from our customer base talking about purchase of dollars after the election has gone down. But I mean, it was a very, very high level before the election, it has gone down to normal levels. In Argentina, you always have people buying dollars. But that -- it's something that can come back again if there is any noise or any political uncertainty. But so far, we expect this to be quiet in the next months and not really -- is now at, I would say, first month of the year levels, and we expect this to continue at this stage.

Can you give us an idea about the levels of your dollar purchases that you are seeing from your customers? I mean other banks have told us they went from 1 million -- $5 million or $6 million to $30 million or so per week. Where are you and where are you relative to, let's say, the second quarter or the first quarter?

Yes. I mean we used to have like $50 million per day. We are now at, I would say, $15 million, something like that. So lower levels -- lower levels. I mean, it's daily levels, but same level at the beginning of the year, I would say.

So that would be the level of the beginning of the year as well, the $50 million.

Yes, more or less, yes.

Our next question comes from Yuri Fernandes from JPMorgan.

A quick follow-up. Most of my questions have been already asked. But just on asset quality, and there were many questions about the peak and how you are seeing. But what makes you confident that first quarter will be the peak? Because we heard before, right? I think second quarter was supposed to be the peak than third quarter. Now we're talking about the first quarter 2026. And I know it's hard, but what is the leading indicators you are looking for? Like why you think it should improve? Is asset like lower yields on loans moving lower? Is the economy improving? Is, I don't know, any kind of underwriting lessons that you learned in this last year? Just trying to understand what drives the confidence for improved asset quality. And just a second one on this topic. How your expected loss model should work on this? Should we start to see lower provisions now because you are calling for improvement ahead? Like -- or no, you still need to do some kind of incurred losses provisions. Help us to understand the difference between incurred losses and expected losses here for you.

I mean, I would say that, of course, when you make an expectation for the future on NPLs, there are 2 things that plays. One thing is what you can control and the other thing that you cannot control, which is the market and how the economy is doing for families and for people. Of course, what that -- what we always talk is about what we are doing and what we expect that will create a change. Then in the middle, you may have elections, you may have interest rate going up that you couldn't expect before, many things living in a country, in a developing country that, I mean, 1 month ago was in the border of hyperinflation if the elections were with a different scenario. And now we are all again drafting that -- but with a lot of volatility in the middle that you have a lot of interest rate going now and families being affected. That's why it's not that easy to predict what's going to happen. It's our best estimate with considering what we can control. As you know, people do estimates. So what we are doing is, of course, we changed the score of the customers we are lending to. Our score now it's a better score. It's a higher score. We are -- we cut a lot of the lower scores that we used to have. We reduced limits in some of the lending. we, of course, monitor the roles and we see the roles by vintage and by harvest. And we are seeing that new origination is behaving before than the old one. Then of course, you have in the middle credit cards, which is just that it's not new origination, credit cards, I'm talking about personal loans, the first thing. Now we're going to go to credit cards, it's old customers that starts to behave bad that you didn't do anything, but it just started to behave different because of adjustments they had in the family economy, et cetera. So in that sense, we are also seeing some slight improving in personal loans. I mean we are talking about -- we see personal loans improving, credit cards still having a heavy lifting, and that's why we still see this going on, on the third quarter -- on March. If it's February or April or May, I mean, this is again, I think what Carlo was saying, well, you are predicting ROE, you are a magician. We are doing our estimate today, I mean, with what we have. Of course, that we cannot guarantee that the ROE will be 11% is an estimation with the forecast we have as all banks does in the world. This is the same. This is with the tools that we have, we made those changes that we expect that they are going to reduce changes, again, going to better scores, cutting limits and monitoring that roles of the new lending is coming better than the old ones. Then we -- if there is something in March or February that happens that affects families' incomes again, well, we cannot predict that. But with the assumptions and the economy as is today, we expect this to happen.

No, no, super clear. I know it's hard. Good examples. I was just trying to understand the -- what has changed, right?

We are talking also about the dynamics. Sorry, I didn't answer that one. The dynamic of the models, I mean the point is that when the new lending, you are booking new losses or new reserves for the new lending considering the behavior of the past lending. So you still won't see a lot of reduction in the I would say, the cost of risk in the same in the first month because even though you're originating or we are originating better quality, you still need to book reserves considering the past performance of your portfolio. You cannot say, well, this is -- these guys are better, so I will book a lower -- a better performance because you didn't see that in your book. So that's why at the beginning, you will take some time in have a reduction in the cost of risk because the new lending is also booked considering the behavior of the past lending. Then when you start proving that those lendings are -- or those customers are behaving better than the old ones, then you start reducing your cost of risk. But that's something that is gradual. It's not that quick. That's why we will see first quarter of next year still with higher provision.

Our next question comes from Santiago Petri from Franklin Templeton.

I understand you mentioned you're expecting return on equity by the mid-teens by 2027. I would like to know what loans to GDP assumption you are assuming for this achievement. And if this return on equity is the sustainable steady state that you are aiming at or you are aiming at a higher return on equity? And what will be the steady state loan-to-GDP penetration in Argentina under this assumption?

Mean what we are seeing is, I mean, loan to GDP today is around 10%, 11%, more or less. I mean, we are expecting in our projections, if everything goes right, that this can improve 2% per year. We -- our aim is to be a sustainable ROE between 15% and 20%, I would say. That's the aim. We expect, I mean, with everything going right with our assumptions to be around 15% by the end of next year. So starting at 15%, we -- I consider that by 2027, we could be in that range. Still, we don't know what Argentina will find by that time. But if everything continues to improve, loans to GDP continue to grow at least 2% per year, we believe that, that could be the range in 2027 and onwards, maybe 2027 still at mid-teens and 2028 already at higher teens. But our aim for the longer term with a country that is already stabilized with our changes in our operating model, we are also working in changing our operating model or how to serve our customers to reduce cost and compete with the fintechs, with Mercado Pago that we know that they have a much lower cost to serve. So with that already everything implemented, we -- our aiming is to be between 15% and 20%, I would say. And that should be after 2027.

Okay. I think that was the last question right?

Right, Pablo.

Okay. Well, so thank you, everybody, for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning, good afternoon.

Bye-bye.

Bye-bye.

Grupo Financiero Galicia is now closed. We thank you for your participation, and wish you a very good day.

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.

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.

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.

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

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

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.

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%.

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?

Sorry, pay more dividends in the card. I couldn't understand that last sentence.

No, with the capital that you have is more dividends at some point...

To reduce capital, you mean?

Yes, yes, exactly.

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.

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...

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.

Next question from Yuri Fernandes with JPMorgan.

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.

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.

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.

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.

Our next question comes from Pedro Leduc with Itaú BBA.

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.

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.

Next question from Alonso Aramburú with BTG.

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?

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.

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?

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?

Cost of risk.

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.

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

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?

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?

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

The level of NPLs, yes, closer to total book closer to 5%.

Next question from [indiscernible].

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.

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.

Next question from Santiago Petri with Franklin Templeton.

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.

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.

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.

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.

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.

Bye-bye.

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