This article first appeared on GuruFocus .
Release Date: August 26, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Net income for Q2 2026 reached PHP258 billion, up 12% year-over-year, with a return on average assets of 2.1% and return on average shareholder equity of 11.3%.
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Banco Galicia's net income improved 211% sequentially and 21% year-over-year, supported by lower funding costs, stronger performance from government securities and derivatives, and modest net interest margin expansion.
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Loan loss provisions declined 8% quarter-over-quarter, reflecting improved delinquency indicators and early signs of stabilization in asset quality.
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The bank gained market share in both loans and deposits, with estimated market share of loans to private sector up 69 basis points to 15.1% and deposits up 42 basis points to 14.3%.
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The bank maintained strong liquidity and solvency metrics, with a total regulatory capital ratio of 26% and Tier 1 ratio of 25.9%, both increasing 48 basis points from the prior quarter.
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Cost efficiency improved, with the bank's efficiency ratio at 38.8% in Q2 2026, and management expects to end the year with costs 11% lower than the prior year due to integration synergies from the HSBC acquisition.
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Management expects further reduction in cost of risk to 8.3% for the full year 2026, down from 9.3% currently, and NPL ratio to decline to 6.3% by year-end.
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The bank is well-positioned to benefit from potential government initiatives to support mortgage lending, which could drive future loan growth.
Negative Points
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The non-performing loan (NPL) ratio deteriorated to 8.3% in Q2 2026, up 60 basis points from 7.7% in the prior quarter, indicating ongoing asset quality challenges.
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Loan growth remained slow, particularly in peso-denominated loans, due to low demand in the commercial credit segment and strict origination policies on the consumer side.
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Net interest income decreased 3% quarter-over-quarter, driven by lower interest income from loans and other financing due to lower volumes and declining interest rates.
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The bank's net interest margin is expected to face downward pressure as inflation continues to decelerate, with management projecting margins to decline to 16% for the full year.
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The cost of risk remains elevated at 9.3% for the bank, though expected to decline, and the stabilization of NPLs is taking longer than initially anticipated.
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The bank's ROE for the first half of 2026 was around 7%, below the full-year target of 10%, and management acknowledges that achieving this goal depends on a pickup in lending volumes.
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The bank faces ongoing pressure from high Argentine taxes, such as turnover tax and VAT on lending, which could weigh on profitability as margins compress.
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Management expects the peso loan portfolio to see only very small real growth, with most loan growth coming from dollar-denominated commercial loans, which carry lower margins.
Q & A Highlights
Q: What are your macro expectations for the year, and is it a good assumption that 2027 might still see slow loan growth but good yields from treasury results? A: Gonzalo Fernandez-Covaro (Senior Executive): We see inflation at around 29% for the year and GDP growth around 2.6%. Regarding the portfolio mix, we are concentrated on growing loans because that is the sustainable business. We are seeing dollar opportunities in oil and gas and privatizations. However, government bond growth has a limit due to internal prudency limits. We will continue active trading to capture opportunities, especially with volatility expected around elections, but we need to grow the lending portfolio to continue improving results.
Q: What is your view on the political and macro outlook ahead of the presidential election, and what is your ROE guidance for the year and medium-term? A: Gonzalo Fernandez-Covaro (Senior Executive): We expect some volatility around elections, but the central bank is better capitalized with stronger reserves than in previous cycles, which should control disruptions. It is too early to focus on polls. We are seeing improving delinquency rates in our portfolio. For ROE, we are aiming for around 10% for the year, with a goal to end around 12%. For next year, we are aiming for 15%, though we will confirm guidance later. Our long-term ROE target remains 15-20%, but the inflation accounting burden makes it harder to achieve as inflation declines.
Q: How are you thinking about deposit growth going forward, and is the pickup in peso deposits sustainable? Also, how do you think about capital ratio evolution? A: Gonzalo Fernandez-Covaro (Senior Executive): We expect total deposit growth of around 10% for the year. We manage the balance sheet efficiently, only raising time deposits when needed for lending growth. Dollar deposits will see some growth but not explosive. We are active in issuing dollar commercial papers to fund dollar lending. On capital, our ratio is high and allows us to grow. We expect to end the year between 24% and 25% and have enough capital for the next three years of healthy growth without needing to raise capital, while paying reasonable dividends.
Q: How should investors think about net interest margin sustainability as rates continue to normalize, and what is the single largest driver for ROE expansion? A: Gonzalo Fernandez-Covaro (Senior Executive): Margins will continue to have downside pressure as inflation goes down. For the bank, we see margins at 16% for the full year. The mix between peso and dollar loans affects the numbers, as dollar margins are much lower. We are preparing our cost structure for a lower-margin environment. For ROE expansion, the main driver is credit growth. Cost of risk reduction is also key, as we are still at high levels (9.3% now, targeting 8.3% for the year). Efficiency improvements and AI initiatives will also contribute, but margin increases are unlikely if Argentina continues on this path.
Q: Can you clarify if the 8.3% cost of risk guidance is for the bank or the group, and if it's an average or end-of-period figure? Also, is the 16% margin guidance an average? A: Gonzalo Fernandez-Covaro (Senior Executive): The 8.3% cost of risk is for the bank only, for the full year (12 months). The bank is currently at 9.3%. Regarding margins, I was also talking about the bank, which is around 17% now. We expect to end the year at 16% for the bank. The full group margin is almost 18%, and we expect to end the year around 17%.
Q: What can we expect for the retail segment growth, and which segments are driving the NPL stabilization? A: Gonzalo Fernandez-Covaro (Senior Executive): We are working hard to grow the retail portfolio, mainly in personal loans, with better products and lower rates for better segments. We expect personal loan portfolio growth of 4-5% in the second half. On NPLs, the main problems are credit cards and personal loans, but we are seeing improvements as we target higher segments. We expect the bank's NPL ratio to be at 6.3% by year-end, down from the current 8.3%.
Q: What is the composition of the loan portfolio in dollars, and do you have internal limits? Also, where do you expect the exchange rate to be? A: Gonzalo Fernandez-Covaro (Senior Executive): We have internal limits based on liquidity. We maintain around 40-50% liquidity in dollars. Our dollar deposit growth has allowed us to increase the dollar loan portfolio, which is mostly short-term export financing. We still have room to grow with current deposits and are issuing dollar commercial papers. For the exchange rate, we expect around 1,600 pesos per dollar at the end of this year and around 2,000 by the end of next year.
Q: How is the new NPL formation evolving at Naranja X, and should we expect coverage ratios to return to 100%? A: Hernan Garcia (Naranja X CFO): We are already seeing a reduction in cost of risk during the second quarter, and we expect further reductions in the second half. We expect to end the year at around 16-17% cost of risk, down from almost 20% in the second quarter. Short-term delinquency rates are still going down, which supports our expectation of NPL reduction and a recovery in coverage ratio to the range of 100%. Pablo Firvida (Head of IR) added that for the bank, we see gradual improvement in coverage, getting to 95% next quarter and closer to 100% at year-end.
Q: Is the 10-15% loan growth expected to come from real growth in peso loans or mostly from dollar loans? A: Gonzalo Fernandez-Covaro (Senior Executive): Peso loan growth will be very small in real terms. Most of the growth will come from the commercial side, specifically from dollar loans.
Q: Where do you see the efficiency ratio by the end of 2026, and what is the long-term target? Also, do you anticipate any regulatory improvements regarding taxes or reserve requirements? A: Gonzalo Fernandez-Covaro (Senior Executive): For 2026, we expect the efficiency ratio to be below 40%, around 39% for the bank. The long
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
