Galicia Cuts Loan Growth Guidance as Asset Quality Peaks – A Pivot to Prudence
Argentina's largest private bank sees cost of risk peak behind it, but trims 2026 loan growth to 10-15% and aims for 12% ROE by year-end.
GGAL · Earnings Call · 2026-08-26
Macro Stability: The Calm Before the Election
The Argentine economy is showing signs of life, with lower inflation and a stabilising currency. Pablo Firvida opened the call by noting that "the Argentine economy expanded 2.7% year-over-year in June". The Central Bank has been successful in bringing monthly inflation down from 3.4% in March to 1.9% in June, and the financial system is expanding, with private-sector dollar-denominated loans up 48.8% year-over-year. This is a backdrop that favours banks, but it also brings its own pressure on margins as interest rates normalise. Management now expects full-year inflation around 29% and GDP growth of 2.6%, with the exchange rate drifting to ARS 1,600 by year-end and 2,000 next year.Asset Quality: The Peak May Be Behind Us
A central theme of the call was the confirmation that the cost of risk has peaked. Gonzalo Covaro reiterated that "Stabilization and reduction of NPLs will take one more quarter than expected. We are seeing now the peak in the second quarter." The bank now guides to a cost of risk of 8.3% for 2026, down from 9.3% at the half. Asset quality metrics are improving, with NPLs expected to decline from 8.3% to 6.3% by year-end at the bank level. This is a marked shift from the previous call, when management had expected the peak in Q1: "Cost of risk, we are seeing to end the year 8% ... we expect to end '26 in 8%". The revision to a Q2 peak is a recognition that the consumer book, particularly credit cards and personal loans, needed more time to stabilise. Coverage ratios are also on the mend, with the bank aiming to return to near 100% and Naranja X targeting a recovery to similar levels.Loan Growth: A Deliberate Slowdown
The most significant change is the cut to loan growth guidance. From the prior 20-25% real growth, management now projects only 10-15% for 2026. As Gonzalo stated: "Our projections for loan growth are now around 10% to 15% with more participation in dollar type of companies". This is a deliberate choice to protect margins and asset quality. The bank is dollar denominated loans growing faster, while peso lending is expected to be flat. Management is also leaning on government bond investments to support yields, though they stress internal limits. The decision reflects a 'prudence over growth' stance, likely influenced by the upcoming election cycle. Notably, the bank also welcomed the government's new mortgage financing initiative, viewing it as a positive for the system even if details are still being analysed.ROE Recovery: A Path Back to Mid-Teens
The bank expects ROE to recover to around 10% for the full year, with a stretch target of 12% by Q4. Gonzalo was clear:Medium-term, the bank aims for 15% in 2027, hinging on loan growth resumption and the eventual removal of inflation accounting drag. The guidance is more conservative than the prior call's 10-11% expectation, reflecting the slower macro and higher loan-loss charges. Management underscored that credit growth is the single largest driver for ROE expansion, followed by cost of risk reduction and further efficiency gains. They also emphasised that the current capital ratios (26% regulatory) give ample room to fund growth without raising capital for at least three years. The overall message is one of discipline and patience: the bank is trading near-term growth for a cleaner balance sheet and a more sustainable ROE trajectory. With the asset-quality peak now behind, the focus shifts to executing on the second-half loan pick-up and capturing the benefits of a more stable, lower-inflation Argentina.We are 7% and something cumulative. Yes, we see that, that will continue improving, I would say, around 12%, try to end the year with something around 12%.