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Edited Transcript of GGAL.BA earnings conference call or presentation 13-Aug-19 3:00pm GMT

Q2 2019 Grupo Financiero Galicia SA Earnings Call

Buenos Aires Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Financiero Galicia SA earnings conference call or presentation Tuesday, August 13, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Pablo Eduardo Firvida

Grupo Financiero Galicia S.A. - Institutional Relations Manager

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Conference Call Participants

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* Babatunde Ojo

Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner

* Carlos Gomez-Lopez

HSBC, Research Division - Senior Analyst, Latin America Financials

* Ernesto María Gabilondo Márquez

BofA Merrill Lynch, Research Division - Associate

* Gabriel da Nóbrega

Citigroup Inc, Research Division - Research Analyst

* Jason Barrett Mollin

Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services

* Nicolas Alejandro Riva

BofA Merrill Lynch, Research Division - Research Analyst

* Yuri R. Fernandes

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to the Grupo Financiero Galicia Second Quarter 2019 Earnings Release Call. Today's call is being recorded.

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

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [2]

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Thank you. Good morning, and welcome to this conference call. I will make a short introduction and then we will take your questions.

Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities laws and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed.

According to private estimates, the Argentine economy recorded a 0.1% year-over-year contraction during the second quarter of this year compared to a 7.1% year-over-year contraction in the first quarter of this year. During the first half of 2019, the primary fiscal surplus amounted to ARS 30.2 billion, in excess of the ARS 20 billion target for the full year. According to the National Institute of Statistics, the national consumer price index recorded a 22.4% increase during the first 6 months of the year.

On the monetary front, the Argentine Central Bank expanded the monetary base by ARS 24.3 billion in the second quarter, a 1.8% expansion against the first quarter. Meanwhile, the exchange rate averaged ARS 43.72 per dollar in June, a 5.7% increase against the average for March 2019. When compared to June 2018, the FX rate increased 62.3%.

In June, the average rate on peso-denominated private sector time deposits who were up to 59 days was 49%, almost 9 percentage points above the average recorded last March. Private sector deposits in pesos amounted to ARS 2.4 trillion, increasing 9.5% during the quarter and 49.5% in the year.

Transactional deposits in pesos rose 13.9% during the second quarter and 31.3% in the year. Peso-denominated time deposits increased 5.7% in the quarter and peaked at 72.3% year-over-year.

As of the end of June, peso-denominated loan to private sector amounted to ARS 1.54 trillion, recording a 0.6% increase during the quarter and a 0.2% increase when compared to June 2018.

Turning now to Grupo Financiero Galicia. Net income attributable to Grupo Financiero Galicia for the second quarter amounted to ARS 11.6 billion, 316% higher than the same quarter of the previous year mainly due to profits from Banco Galicia for ARS 10.1 billion; from Tarjetas Regionales for ARS 922 million; from Sudamericana Holding for ARS 314 million; and from Galicia Administradora de Fondos for ARS 114 million, increased by net operating income of ARS 109 million and partially offset by personal and administrative expenses of ARS 52 million. This profit represented a 7.3% annualized return on average assets and a 68.9% return on average shareholders' equity compared to 3% and 24.8% a year ago. For the profit per share amounted to ARS 8.11 compared to ARS 1.95 per share for the same quarter of 2018.

Going to Banco Galicia. Net income for the quarter increased 414% from the year ago quarter as a result of a higher net operating income mainly related to the growth of net income from financial instruments, partially offset by higher loan loss provisions and interest expenses. Net interest income for the quarter decreased 83% as compared to the same period of 2018 primarily as a consequence of the 254% higher interest on time deposits and term investments. This decrease in net interest income was more than compensated with the increase in net income from financial instruments, which was up by ARS 16 billion from the ARS 1.5 billion recorded in the second quarter of 2018. This was a consequence in the increasing results related to a greater volume of Leliq Holdings together with a higher yield on this instrument.

Profits from gold and foreign currency quotation differences amounted to ARS 2.3 billion, including a ARS 2.2 billion profit from foreign currency trading and were 198% higher than in the same quarter of last year.

Provision for loan losses for the quarter amounted to ARS 3.1 billion, 115% higher than the same quarter of the prior year mainly due to the evolution of arrears in the consumer portfolio.

Personnel expenses increased 56% as compared to the year before, in line with the accumulated inflation for the period and mainly due to salary increase agreements with the union.

In addition, administrative expenses grew 64% mainly due to higher fees and compensation for services and higher taxes.

The income tax charge was ARS 1.6 billion, ARS 802 million higher than in the second quarter of last year. During this quarter, in accordance with the Income Tax Law and to the evolution of the consumer price index, this charge was adjusted by inflation for tax purposes.

The bank's financing to private sector reached ARS 295 billion at the end of the quarter, up 21% in the last 12 months, 12% growth for the peso financing and 9% for the financing in U.S. dollars. And deposits reached ARS 409 billion, up 57% in the year with peso-denominated deposits growing 54% and U.S. dollar deposit 8%.

The bank's estimated market share of loans to private sector was 10.6%, 57 basis points higher than at the end of the year ago quarter, and the market share of deposits from the private sector was 10.7%, recording a 24 basis points increase in the same period.

As regards asset quality, the NPL ratio ended the quarter at 4.63%, recording a 236 basis points deterioration as compared with the 2.27% of the second quarter of the prior year. And the coverage of NPLs with allowances reached 108%, up from 103% from a year ago.

As of June 30, 2019, the bank's consolidated computable capital exceeded by ARS 31 billion or 106% to ARS 29 billion minimum capital requirement. And the total regulatory capital ratio reached 16.98%, increasing by 359 basis points from the same quarter of fiscal year 2018.

In summary, during the second quarter of 2019, Grupo Financiero Galicia has [showed ourselves] in a very challenging macro environment, keeping liquidity, solvency and profitability metrics at high levels.

Now we are ready to answer the questions that you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question from Jason Mollin from Scotiabank.

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Jason Barrett Mollin, Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services [2]

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Pablo, my question is given the current volatility in the markets that we've seen following the primary elections, if there has been a change in how the bank is positioning itself in these days, it's very early, but we've seen your exposure to short term -- well, in this case, it's short-term government bonds increased dramatically over time. That's a sector-wide phenomena given the operating environment. But is that -- is this the level of -- in the current context, you would expect the bank to have about 1/4 of its assets in Leliq and other debt securities?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [3]

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Jason, well, as you said, it is too early to take different actions mainly because what we saw on last Sunday was the results of primaries. We have the 75 days for the elections. Many people are saying that, still, Macri has some probability of being elected. So this, I would say, political uncertainty for the next 75 days is bringing uncertainty and volatility to the FX market that will create some pressure on inflation. We are very liquid, very well capitalized. And we have, I would say, a quickly and very flexible Leliqs option twice a day, so we can, I would say, moderate the amount very quickly. Actually, in a week, we could go from ARS 127 billion that was the number at the end of June to 0, if we wanted to. That in the second quarter, it was our source -- main source, I would say, of revenues as we were taking time deposits and investing this liquidity in Leliqs.

In terms of FX position, we are hedged. Last Friday, we were around $15 million to $20 million long, considering the spot position [on forward]. So really, everything is very short term. So we are, I would say, quickly to react -- or we react quickly to any potential change in any macroeconomic variables. Apparently, the answer was too wide, or you want more color on specific decision or variables.

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Jason Barrett Mollin, Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services [4]

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That's helpful on your positioning. It is early. Maybe just some color -- additional color around what you're seeing and what you saw yesterday -- what the bank saw yesterday and today in the FX market. I guess the spread was very wide. Is the bank -- are customers going to the bank and transacting at what kind of spreads for the Argentine peso versus the dollar?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [5]

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Well, yesterday, the volume was in the spot market in all the country was $550 million. In the spot, in the forward market, the [rough hedge] was about $900 million. These numbers are below the average of the last, I would say, month or 30 days. The average in the spot was something around $700 million. Of course, the surprise was the jump with this kind of small volume. Right now, we are seeing some dollarization but, really, nothing, I would say, out of the average. We have, of course, to monitor if the political environment gets better and people get calmer. And right now, you don't see people in branches because you can dollarize your peso just with a click with your either mobile or your computer. So -- but the volumes are really ordinary, nothing strange.

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Operator [6]

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The next question comes from Gabriel Nóbrega from Citi.

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Gabriel da Nóbrega, Citigroup Inc, Research Division - Research Analyst [7]

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My question is sort of a follow-up to -- on previous question. Looking ahead, being that we saw quite volatile movements in the market yesterday, we're also seeing an increase of around 12% in the [meta vol] today. I would just like to maybe pick your brains and understand where do you think are the main challenges in these next 75 days until the elections and if you are already thinking of any strategies that the bank couldn't take in these possible next few days. I'm going to make a second question afterwards.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [8]

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Okay. Well, in my opinion, the market reacted yesterday very negatively to the potential change in government. Basically, I think it was a big surprise because most of the pollsters were giving a very tight scenario. Even some polls were showing that Macri could be winning either in first round or even in the [ballot dash]. So the difference between Alberto Fernández and Macri really surprised everybody. And in my opinion, because it's not clear what would be the -- their actions or decisions if they are elected in October or November. So this uncertainty created this run on peso, the shares. And also the country risk premium jumped considerably.

I think one of the main variables to monitor is the FX because Argentines think in dollars. And if there is a lot of volatility in FX, people get uncomfortable or worried. We have many years of history doing this -- or the previous century, not only this century. So there is, in my opinion, the main variable. And that affect inflation because there is, as we, again, think in dollar, there is a pass-through to prices if there is movement in the FX. It's not clear what percentage of any potential devaluation go to prices and how quickly. But definitely, it put pressures on inflation. So that's, in my opinion, will be if the FX market is calm, it's a good signal that this period of time until the elections will be easier for the government to manage.

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Gabriel da Nóbrega, Citigroup Inc, Research Division - Research Analyst [9]

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All right. That was very helpful. And as for my second question, I know it may be too early, but have you seen anything in terms of a deposit run? And do you think that there could be a new worry inside from the bank if we actually see people running to take their deposits out of the bank?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [10]

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No. As of, what -- the numbers we mentioned are as of June, but we are seeing the deposits in pesos growing. Deposits in dollars, in our case, the number yesterday was $4.5 million -- $4.5 billion in the case of the bank, non-dollar-denominated deposits measured in dollars. And they are, I would say, quite stable. Of course, we are monitoring that very carefully, permanently, I would say. And we are, in my opinion, over liquid even we took some measures like, for example, importing dollar bills, just in case. We perhaps will have lower profitability, but we would -- we want to be very secure and comfortable with our liquidity not only in terms of loan to deposits in pesos or in dollars, but also in terms of having the bills -- the dollar bills in case there is some kind of a run, as you mentioned. But again, so far, no.

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Operator [11]

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

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Ernesto María Gabilondo Márquez, BofA Merrill Lynch, Research Division - Associate [12]

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My first question is if you can share any color on the potential plans of Alberto Fernández. I believe he has mentioned before he will honor the Argentine debt, but he has expressed again Leliq before. So from your point of view, what is Alberto will likely do different from Macri? And how comfortable can we be that they will not come back to put the measures during the Kirchner's period, especially having Cristina running as Vice President? Do you think the new government would want to make stronger again the state-owned banks in Argentina? And on my second question is related to your strategy to protect the asset quality under this environment given your exposure in credit cards and that your reserve coverage ratio is at 100%. So under more conservative approach, do you expect to increase the reserve coverage ratio?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [13]

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Okay. Ernesto, what I can say -- I would say about Alberto Fernández is what I shared from political analysts that met him in the past. But of course, these are opinions from third parties. I would say that, like a summary, he's [apparently] from the city of Buenos Aires. I would say, a little bit more intellectual, to put a name or word, not the typical guy from a province in the -- very far from Buenos Aires where the -- some governors, especially, are like mini kings. So this -- he's, I would say, more intellectual, more open to dialogue, more, in another word, democratic. And he is a guy that -- who you can speak with. And so -- and he has been saying that he will honor debt, that he will not do strange things, that he wants, of course, to have a better economy in terms of consumption, SMEs and so on. But the thing is that, in general, no politician tells how they are going to do it.

The big, I would say, doubts and, in my opinion, why the market reacts so badly is because in his party or coalition, there are many different, I would say, ideologies. And in the past, the Kirchnerism didn't take a particularly orthodox measure. So that's why some people are a little bit worried.

On the other hand, looking at the economy now, there are less degrees of, I would say, flexibility in terms of -- and now you have the IMF with a big financing package. Also there are not many stocks inventories, I want to say, to sell or distribute. And also the government -- the current government improved what was the big twin deficits. Now we are closer to fiscal surplus. And also the current account deficit shrunk dramatically. So in this sense, the starting point would be easier. Of course, the big variable that is missing is inflation. That Is, I would say, the main critic that the population makes to this government.

So I also read that some analysts are saying that the probability of Alberto Fernández being more, I would say, market-friendly is 70%; and on the other hand, like, 25% or 30% would be being more influenced by the Kirchnerism. So that is, in my opinion, why there is this uncertainty.

Going to the asset quality, we want to have the coverage above 100%. I think in June -- at the end of June, NPLS at the bank were in the order of 4.6%, in the case of Naranja at 12%. In July, we saw some improvement due to the 13th salary, the aguinaldo, and also some recovery in purchasing power. Now we have to see how the second half of the year evolves in terms of FX, inflation and the salary agreements. So in theory, there should be some flattening of the NPLs, and we're forecasting some improvement towards the end of the year. That must be monitored. But again, we are going to increase our provisioning in order to have a coverage above 100%.

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Ernesto María Gabilondo Márquez, BofA Merrill Lynch, Research Division - Associate [14]

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So just a follow-up. So just given this kind of inflation, do you think Alberto can use the state-owned banks to lend if private banks don't want to do so? And in the second question, so given that the asset quality is improving, you don't see the reserve coverage ratio having to get up, right?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [15]

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Well, in terms of what the -- let's say, again, the potential new government can do with the state-owned banks is a question mark. Typically, they don't commit, I would say, suicide. They don't do stupid things. And they have to fulfill all the regulation from the Central Bank in terms of capital requirements, reserve requirements and so on. So perhaps, they could try to launch certain subsidized loans but, really, in my opinion, wouldn't be disruptive for the market at all. And again, if the asset quality deteriorates further in the coming months, we will be increasing the provisioning in order to -- or the cost of risk in order to keep the coverage above 100%. That is our internal policy.

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Operator [16]

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The next question comes from Nicolas Riva from Bank of America.

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Nicolas Alejandro Riva, BofA Merrill Lynch, Research Division - Research Analyst [17]

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Two questions. So the first one, when you look at the main trends in terms of growth, NPLS, they were already quite challenging even before what happened on Sunday, no? NPLs increasing, loan growth negative in real terms. How does the -- what happened on Sunday actually change your outlook for loan growth and NPLs for the second half of the year? How much worse does it make it? And then second, it's probably a follow-up on previous questions. But in the past, Cristina's government, they did some measures which were negative for the banking sector, right, like putting caps on interest rates, loss on term -- on rate and term deposits, directed lines for SMEs. Are you concerned about any of those measures coming back in a likely Alberto Fernández administration?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [18]

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Nicolas, the great demand -- or loan demand has been very soft mainly because of the high level of interest rates. And we were, all the banks in general, were very conservative and still are conservative in granting, and also the demand is very low, again, because of the high level of interest rate and also because of the soft economy, too. With the interest rates going down as we were seeing until last week, we were beginning to see some kind of new origination. The interest rates came back to very high levels, so we are not foreseeing any growth -- will, of course, not growth. Actually, that will be a reduction in real terms in our loan book.

And NPLs, in part, are deteriorating due to this because the denominator is not growing, no? There is no net origination. So we could see some slight deterioration. But really, loan to DP was very low and today is even lower. So really, there is not much room for further deterioration. Of course, we must monitor, again, inflation compared to salary increases and the evolution of the different sectors of the economy. We will, I would say, be able to comment on any potential measure once we know the measure.

In the past, yes, we saw some kind of, as you said, caps on certain interest rates or minimum interest rates on time deposits or subsidized lending to SMEs. In general, these were measures that had us an objective to -- for example, to move the economy, to foster the economy, not really to make banker's life more difficult. Most likely, tool to try to foster the economy. And most of these measures were offset with other decisions that we took. We, many times, say that we can't estimate the instant or potential effect on one relation or measure, but what happens in the end is that we take other actions to offset this thing. Again, we cannot say if we are worried or what they could do. We need to see first that the government -- or the new -- or the opposition wins and then if they take any action.

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Operator [19]

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(Operator Instructions) The next question comes from Carlos Gomez from HSBC.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [20]

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My question has been asked already. I'm asking about at the very high level of Leliq and very high level of NIMs in this period. How sustainable is this into this year and next year? And obviously, with all the uncertainty level that we have today given that you are not growing the loans, but you are growing the Leliq, what would be a range of possible returns that you might expect next year relative to the inflation?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [21]

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I don't know if I understood because the line wasn't very clear. You asked about the level of Leliq, how sustainable they are and yields going forward.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [22]

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Yes, how sustainable the level of NIM, I guess more than Leliq? The level of NIM and also what type of return that you're seeing that you can have in real terms, which is how you will publish it next year. And again, we understand it's very uncertain at this point.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [23]

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Yes. Carlos, as I mentioned, as of June, we have about ARS 127 billion of Leliqs that made us have very high not only financial income from instruments, but also it had a very positive impact in terms of net income. And because the stock grew and also the yield increased. It's a stock that can change very quickly, and we are -- we have flexibility because every day, there are 2 options. So today, the number is below ARS 100 billion, to give you an idea. And the yield also is very volatile. The -- in a virtuous cycle, what should be happening is that when interest rates go down, loan demand would pick up. And there will be a shift from Leliqs to lending to the private sector.

NIM for the quarter, including the Leliq, of course, because we are financing Leliqs with time deposits, was around 21%. It's abnormally high. If Leliq yield goes down to previous levels, not the 70-plus we are seeing today or to the 50-plus we saw a couple of weeks ago, NIM definitely should go down. But when NIMs compress, it means that volume is recovering. So it would be much healthy, better for us to have more volume with lower margins and not as it is the case today. Of course, this is a scenario with, as many of you mentioned, a very challenging macro scenario. The good news is that we are protecting profitability through the Central Bank paper.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [24]

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What would be the normal level of NIM then?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [25]

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Normal. It's a hard word.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [26]

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It's a really big word with Argentina.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [27]

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And yes. No, so one year ago, margins -- or I would say, 18 months ago, margins were around 12% to 13%. It shouldn't go down to these levels, but we have to see how many quarters we need to get to these levels. It's -- it will be a function of the FX and inflation, of course.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [28]

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All right. And returns for next year.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [29]

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And what, sorry?

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [30]

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Returns for next year, what does the bank aspire to have in 2020?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [31]

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Well, the -- our objective and even internal calculation is to have a real return on equity above 10%. It could be even higher this year, but we are -- and next year, due to regulations, we will have to have all the numbers adjusted by inflation. So we will see just one number, not nominal and adjusted by inflation. So the objective is to have, I would say, around or above 10% real return on equity.

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Operator [32]

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(Operator Instructions) The next question comes from Yuri Fernandes from JPMorgan.

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Yuri R. Fernandes, JP Morgan Chase & Co, Research Division - Analyst [33]

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I have a first one regarding the cost of capital you use internally, if you can comment what is the cost do you have for internal projects. And if you can also comment what was this cost of capital back in 2013 and '14 to have some idea what you use to have in the past. So that's one. And my second question is regarding the effective tax rate. I got that you have inflation accounting here and that explained the benefits. But excluding inflation and adjustment, what would be like the normalized effective tax rate for Galicia?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [34]

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Yes. Yuri, I will begin with the last one. In this quarter, we made the calculation for income tax adjusting by inflation, the charge was around ARS 1.3 billion. The inflation adjustment was around ARS 2.7 billion. So it would have been that amount higher, the income tax, if we haven't done the adjustment. That is because the income tax loss that is this year inflation is higher than 30%. We could consider inflation adjustment in the -- for the calculation of income tax has, for the first 6 months, the accumulated inflation was 22.4%. We consider that it's impossible to have lower than 30% this year.

And in terms of cost of equity, of course, we don't calculate it on a daily basis. It's been very volatile, the country risk premium. I would say, on average, in the last 3 years was closer to 12% in dollars. But definitely, these days should be higher. And the consequence is that not new projects are analyzed. So we are not initiating any new project. We are in a more, I would say, conservative and wait-and-see mode.

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Operator [35]

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The next question comes from Tunde Ojo from Harding Loevner.

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Babatunde Ojo, Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner [36]

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Questions for me on the impact. Any sort of impact you've seen in the banking sector and probably more relevant here at Galicia in the last 2 days in terms of behavior of customers to this new political or economic uncertainty? And then my line of question is in 2 parts. Have they sort of dollarized significantly? And apologies if you've answered that question before. And number two is any sort of bank loan, like people putting money in a safe deposit box or taking money out of the banking system. Are you seeing any early signs of that yet or not?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [37]

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Tunde, well, I mentioned that the volume in the spot market yesterday for the country was $550 million, much lower than the average of the last 30 days that was about $150 million. The -- yesterday, the dollar grew from levels of ARS 45 to ARS 53. But really, people -- it was on a rise. There are some estimates from the Ministry of Economy or even the Central Bank that around 83% to 85% of the assets of the private sector are in dollars. So really, there is not much room. And so far, we didn't see any, I would say, abnormal behavior. Of course, I would say, this volatility creates some worries. But again, it's so easy to dollarize. You don't need to go to a branch that these people can wait and see the price of the dollar. It was very volatile yesterday. It is volatile today. So really, so far, nothing abnormal, I would say. And again, we took preventive measures in order to be even more liquid. We have more dollar bills not only in our safe deposits box being one, but also in the different branches to avoid any potential, I would say, reputational damage.

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Operator [38]

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The next question comes from Carlos Gomez from HSBC.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [39]

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Yes. Pablo, a follow-up on the tax. So on the adjustment that you made, the ARS 2.7 billion, that refers to your tax liability of 2019, the current fiscal period and that you have taken, so you are effectively using inflation accounting for the current period. You have not provisioned for it. And so that has come through in the income statement. Do we understand correctly?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [40]

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Carlos, I cannot hear you clearly. Can you repeat, please?

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [41]

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Yes. Let me try to do it again and be more clear. So right now, you have taken ARS 1.3 billion in taxes. You have used inflation adjustment, and this is for the 2019 fiscal period. It is for the current period, right?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [42]

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Yes.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [43]

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So this is not an adjustment for 2018. This is for the current period and it is not also neutralized with the provision. You have actually taken this benefit through the income statement. Do we understand correctly?

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [44]

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Yes. The adjustment is for the first 6 months of this year. The -- we -- the income tax charge for the holding company was ARS 1.3 billion. If we hadn't made these inflation adjustments, it would have been closer to ARS 4 billion.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [45]

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All right. And for 2019, you did not take an inflation adjustment, at least not through the accounting. You may have made a claim, but you have not -- you used normal account of it.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [46]

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No. Yes. In year 2018, we didn't use inflation adjustment because the law said that we were -- or if inflation was higher than 55%, we could take that inflation adjustment. Last year, the inflation was around 47%, so we didn't make any adjustment. Of course, there is a parallel way that is to make a case with the local IRA, the AFIP, and say that we think that there should have been inflation adjustment in previous years. But it's not considered in our numbers.

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Operator [47]

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As there are no further questions right now, I'll now turn the call back over to your host for any additional or closing remarks.

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Pablo Eduardo Firvida, Grupo Financiero Galicia S.A. - Institutional Relations Manager [48]

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Okay. Well, thank you, operator, and thank you all for attending this call. If you have any questions, please do not hesitate to contact us. Have a good day. Thank you.

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Operator [49]

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That will conclude today's call. Thank you for your participation. You may now disconnect.