Good morning ladies and gentlemen and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's Second Quarter 2021 Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After company remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2020 filed with the U.S. Securities and Exchange Commission. Today with us, we have Mr. Ernesto Guyardo, CFO; Mrs. Ines Lanusse, IRO; and Mrs. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Good morning, everyone and welcome to the BBVA Argentina's second quarter 2021 earnings conference call. Before we begin our formal remarks, let me stress that some of the statements made during the course of this conference call may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including factors that may be beyond the company's control. For a description of these risks, please refer to our SEC filings and earnings release which are available at our Investor Relations website, ir.bbva.com.ar. Speaking during today's call will be Ines Lanusse and Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session. Please note, that starting January 1, 2020, as per Central Bank regulation, we have begun reporting results applying hyperinflation accounting pursuant to IFRS rule IAS 29. For this comparability, 2020 and 2021 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2021. Now, let me turn the call over to Ines.

Thank you, Belen. And thank all of you for joining us on our second quarter 2021 conference call. The second quarter of 2021 has been impacted by the second wave of COVID-19 in the context of the sanitary crisis which the country has been going through for more than a year. This implies a deceleration of activity with a persistent uncertainty, generated by pending midterm elections and unsolved conflicts related to foreign debt with International Monetary Fund. BBVA Argentina operating results stand out on the second quarter of 2021, growing 14.5% compared to the previous quarter, boosted by an improvement in net fee income with a focus on operating efficiency, denoting an adequate expense management and by the preservation of margins in a context marked by volatility and rate controls. Meanwhile, the bank closely monitors it's business, financial conditions and operating results in the aim of anticipating possible effects of the gradual removal of regulations implemented by the government during the pandemic and especially over asset quality and margins. Regarding digitalization, our service offering has evolved in such a way that by the end of June 2021, digital finance penetration reached 74% from 69% a year back, while that of mobile clients reached 62% from 57% in the same period. Trend aims towards stabilization considering that the pandemic has caused an important shift towards the adoption of digital channels by clients. Lastly, in terms of responsible banking, in July 2021, BBVA at a global level announced it would double it's target of channeling sustainable financing to €200 billion, BBVA Argentina, being part and collaborating with this target. I will now comment on the bank's second quarter 2021 financial results. BBVA Argentina's second quarter 2021 net income, including inflation adjustment effects totaled ARS7.2 billion, growing 119.3% quarter-over-quarter and 14.3% year-over-year. Quarterly…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gabriel Nobrega with Citigroup. Please go ahead.

Hi, everyone, good morning. For the opportunity to ask questions, I actually have two questions here. So, I wanted to understand a bit more on the asset quality side. You mentioned in your press release that the grace periods have ended for the credit cards. And so I was just really wondering, as these grace periods continue to expire, even though there's also the waiver of the Central Bank. I just wanted to understand what are you seeing in terms of asset quality. Is there any part of your loan book which is starting to worry you Or is this all inside the risk parameters which you forecasted over the past year and which you also duly raised provisions And I'll ask the second question afterwards. Thank you.

Gabriel, nice to speak to you this morning. Okay, regarding asset quality, as of June 30, the deferred portfolio was only 10% of our book, mainly retail and the credit card. As you mentioned, all the waivers from the Central Bank has been lifted. And basically, we're seeing the tendency in line with what we were thinking. Actually, the retailers since -- as I mentioned, most of the deferred is retail, it's behaving very well. The clients are paying and we are comfortable with our asset quality ratios. We are projecting towards the end of 2021, our NPL around 2.9%, so increasing a little bit, mainly by the retail book. And also, it has an effect of the loan book which is now growing in real terms. So it's both some increase in the NPL on the retail book and the loan book which is in real term, is going to decrease by the end of 2021. Regarding coverage, just to complete all the asset quality information, we are projecting a decrease in the ratio going around 170%. Basically, again, the effect comes from the growth of NPLs in the retail book and lower allowances. And the cost of risk, we are projecting an increase to around 3.1%. Basically, the line of loan loss allowances, we're seeing some decrease, although it is increasing the absolute numbers in the second half of the year. But in the overall of the year, it's decreasing a little bit. But the average total loan book is decreasing in real terms. But again, we are comfortable with our asset quality. Obviously, very closely monitoring.

That's very clear. And that's part of my second question. I just wanted to understand how much of provisions did you do for the fiscal years of 2017 and 2018 related to inflation adjustments. I'm just trying to understand here, because in the first quarter, you guys reversed some provisions which you have created back then And then this quarter, you reversed more ARS4.3 billion in provisions. And so I'm just trying to understand if you have already reversed all of the stock of provisions which you had done. Just to understand what we should be expecting for going forward.

Yes. Okay. That -- although that information is explained in the press release, as you mentioned, there were three. One, we reversed for 1.2 those nominal terms in the first quarter of this year was for the accion declarativa of 2016 that had been recorded in 2017. You have to recall that at that time, the Central Bank obliged us to do that provision for that accion declarativa that we placed and we had a favorable court ruling in the first quarter of this year. So that was the first one. For the second quarter, what we did was reverse the one corresponding to 2017 for ARS1 billion and the one for 2018 for ARS3.2 billion. That adds the ARS4.2 billion -- ARS4.3 billion, sorry, that were reversed in the second quarter of 2021. Those are the three accion declarativa we have. They have all been reversed. The last two in the second quarter, let me make it clear, we were advised by our legal opinion, by our auditors, that since the first ruling -- we got a favorable for the one of 2016, we were okay by reversing this -- to other provisions. We actually informed the Central Bank we were going to do this and that's why we reversed it. The court ruling fee is pending. But we have the -- what happened with the one of 2016 and from our advisers, they were okay to revert this provision but there's no more accion declarativa pending to be reverted.

All right, very clear. Thank you so much.

You're welcome.

The next question is from Carlos Gomez with HSBC. Please go ahead.

Hello, Ines. Good morning and congratulations on the results and especially the tax result. I wanted to know what your expectations are for the year in terms of volume growth, both of assets, loans and deposits. And now that your tax situation is resolved, where do you see your returns for the rest of the year and for next year. Thank you.

Hi Carlos, nice to speak to you again. Okay, for -- well projections for the private loan book for the year 2021, we are projecting a contraction around 3.6% in real terms, so always speaking in real terms. We are seeing a decrease in pesos of around 8% and dollars growing around 34% but because the base was very, very low. Basically, we are trying to place in very safe loans in dollars, some part of our -- instead of having the deposits in dollar at zero rates, we tried to place some of those in safe long demand in dollars. Being that said, since we are -- in real terms, we are projecting a decrease of 3.6%. We are seeing the system decreasing even more in real terms. We are projecting the system to decrease around 18%. We are projecting for 2021, an inflation around 50%, the same inflation projection for 2022. Regarding total deposits, there, we're seeing a growth in real terms around 3.1%. The system, we're still seeing the system decreasing 6% in real terms but we are seeing an increase in real terms around 3%. If you split that by currency, we are seeing peso deposits growing around 1.4% and U.S. dollars around 7.3%. Regarding that, as you mentioned, yes, we have done all these reverses. We are waiting to see the numbers of July to try to understand what would be the most normalized tax rate to project. But for your model, you should use around 30%, 35%. Now, going to the net income line that I understood you were projecting that, what we're seeing towards 2021, we are seeing -- obviously, with the comparison of the figures of 2020, taking them to the values of 2021, inflation adjusted, then net income which should remain flat compared to what was the result of 2020.

Sorry, if I could follow-up because it was very quick. On loans for -- in U.S. dollars, if I understand correctly, you expect growth, I think it was, you said 14%. I'm asking because at this point in time, your loans in dollars are actually declining. So you expect to reverse it in the second half of the year

No. We are saying that loans in dollars -- let me check again but the loans in dollars grew 14.4% in the quarter. So they are growing the loans in dollars.

Okay. And for the year as a whole, you said you expect...

Yes, yes. But again, it's a very small portfolio. Just remember that our private loan book in dollars is only 13%. What we are doing is we came from a very low base because we were not really lending in dollars. What we're doing is instead of having the deposits in loan dollar at zero interest rate, to those very safe customers that we know and we have a good relationship, we still are lending some in dollars. But the increase in dollars, it's mainly because of the normal -- of the numbers, of the base that it was very, very, very low. There's not that much activity in the loan book in dollars.

Okay, that is clear. And if I may follow-up, I don't think the call is too long anyway. On your dividends, to clarify, the dividend suspension have been extended until the end of the year. You approved a dividend. Can you do, as in previous years, can you have the dividend approved and separated from equity but pending payment until approved Is that the plan

Correct. We have ARS21.5 billion in the liabilities pending of distributions when the central banks approved distributions.

Does that include the dividend you approved this year or no

The ARS7 billion, yes, correct. The last ARS7 billion is correct. You have -- there's a table in our presentation but let me recap. Hold on, I have here the figures. You have -- yes, from 2019, 14.5%. There were two declarations of dividends that those are pending on distribution and ARS7 billion for the results of 2020; that adds ARS21.5 billion.

All right. Thank you very much.

[Operator Instructions] The next question is from Rodrigo Nistor with AR Partners. Please go ahead.

Hi, good morning and thank you for taking my question. My question is on funding. I mean given the high levels of inflation, I think it's increasingly hard to get access to cheap funding. So what do you expect in terms of mix for your funding base for the rest of the year And maybe a follow-up on this. Do you believe that wallets like Mercado Pago and Uala are having a meaningful impact on availability of cheap deposits.

Okay. Yes, regarding the deposit funding strategy of the bank, basically, what we are doing, as we mentioned in the press release, we have more liquidity this quarter. What we are doing is we are using to attract deposits from cuenta corriente remunerada that pays an interest rate from corporates. It's something that we can easily give and take back. It's something that we control to get those deposits and investment basically in public debt which pays you more than financial intermediation. As you know, there's no credit demand. We have most of our book in credit cards. Credit card, 50% of that is Ahora 12. So the return is not that good. So what we are doing but is actually -- that's why you see the percentage of a deposit that [indiscernible] that is growing but it's something that we control. We decide to give cuenta corriente remunerada to corporates, pay some of that interest rate and put that on public debt which gives us a better return. I don't know if I answered the question.

Yes. And what about the...

Sorry. Public debt, I mean, Central Bank instruments, sorry. Not to confuse. Central Bank instruments, not [indiscernible].

Yes, that's clear. And what about the impact of wallets like Mercado Pago and Uala on the availability of cheap deposits Do you think that's something that might have an impact, or still too small

Not for now. We are not concerned. We have MODO which is working but site deposits are growing. At the same time, we see site deposit grow. Today, site deposits represent 66% of our portfolio. It's increasing compared to the previous quarter. So it's not something that concern us. The problem of Argentina is a low banking penetration. Yes, they are capturing deposits but we are not yet that concerned on the funding side. The liquidity of the bank is very, very high. And again, this strategy, we're doing to cut -- to get funding, that we pay something for the corporates, we pay some in cuenta corriente remunerada but investment -- invest it in Central Bank notes, gives us a better return.

Okay, thank you. That was helpful.

You're welcome.

This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mrs. Lanusse for any closing remarks.

Okay. Thank you for your time and please contact us if you have any further questions. Have a nice day.

Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.