C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks described below in addition to the other information contained in this annual report. In addition, most, if not all, of the risks described below must be evaluated bearing in mind that our most important asset is our equity interest in Banco Galicia. Thus, a material change in Banco Galicia’s shareholders’ equity or income statement would also adversely affect our businesses and results of operations. We may also face risks and uncertainties that are not presently known to us or that we currently deem immaterial, which may impair our business. Our operations, property and customers are located in Argentina. Accordingly, the quality of our customer portfolio, loan portfolio, financial condition and results of operations depend, to a significant extent, on the macroeconomic and political conditions prevailing in Argentina. In general, the risk assumed when investing in the securities of issuers from countries such as Argentina is higher than when investing in the securities of issuers from developed countries.
Risk Factors Relating to Argentina
The current state of the Argentine economy, together with uncertainty regarding the government, may adversely affect our business and prospects.
Grupo Galicia’s results of operations may be affected by inflation, fluctuations in the exchange rate, modifications in interest rates, changes in the Argentine government’s policies and other political or economic developments either internationally or in Argentina that affect the country.
During the course of the last few decades, Argentina’s economy has been marked by a high degree of instability and volatility, periods of low or negative economic growth and high, fluctuating levels of inflation and devaluation. Grupo Galicia’s results of operations, the rights of holders of securities issued by Grupo Galicia and the value of such securities could be materially and adversely affected by a number of possible factors, some of which include Argentina’s inability to sustainresume a sustainable economic growth path, the effects of inflation, Argentina’s ability to obtain financing, a decline in the international prices for Argentina’s main commodity exports, fluctuations in the exchange rates of other countries against which Argentina competes and the vulnerability of the Argentine economy to external shocks.
Since 2012, Argentina has gone throughexperienced a period of stagflation. Figures of economic activity reflectedreflect a slowdown in domestic production, together with an increasing inflation rate at a higher pace than that noted in previous years. AfterIn the Peso devaluation with respectpast decade, the economy has been characterized by a lack of institutional transparency, the absence of long-term economic policies and a systematically expansive fiscal policy, which resulted in a lack of investment and a lax monetary policy. This has, in turn, led to low economic growth and high inflation. At the end of 2015, when the former government took office, it implemented monetary policies that maintained a certain laxity in their fiscal policy while strongly restricting its monetary policy, resulting in high interest rates, a marked growth in public debt and an overvaluation of the Peso. However, at the beginning of 2018, international investors began withdrawing from emerging markets, including Argentina. The country’s loss of access to the Dollar that took placeinternational debts markets resulted in January 2014, the exchange rate between those two currencies remained relatively steady until the end a considerable devaluation of the former government’s termArgentine Peso. This resulted in an acceleration of office.inflation and a new contraction in economic activity during the second half of 2018 and most of 2019. During that period, low activity growth levels continued coexisting with a high inflation rate.
In December 2015, Mauricio Macri took office as 2019,the new president of Argentina. Since becoming president, Mr. Macri has implemented several measures, such as exchange and regulatory measures that reversed policies that had been in place prior to his administration, such as regulations related to exchange controls and other currency regulations.political uncertainty stemming from the presidential election race worsened the economic outlook. The impact of thesethe measures suchimplemented by the previous Administration in order to cope with the situation -such as a devaluation of the Peso with respect to the Dollar of approximately 50%,Dollar- as well as the impact of any measures that the Macri administrationcurrent Government may implement in the future, is unknown and could have a material and adverse impact on the results of Grupo Galicia’s operations.
No assurance can be given that additional events in the future, such as the enactment of new regulations by the Argentine government or authorities, will not occur. As a result of the foregoing, the financial position and results of operations of private sector companies in Argentina, including Grupo Galicia, the rights of the holders of securities issued by such institutions and the value thereof may be negatively and adversely impacted.
Economic conditions in Argentina may deteriorate, which may adversely impact Grupo Galicia’s business and financial condition.
A less favorable international context, a decrease in the competitiveness of the Peso as compared to foreign currencies, the low consumer confidence and low confidence from both local and foreign investors and a higher inflation rate, among other factors, may affect the development and growth of the Argentine economy and cause volatility in the local capital markets. Such events may adversely impact Grupo Galicia’s business and financial condition. Pursuant to the National Institute of Statistics and Census (the “INDEC”), the gross domestic product (the “GDP”) in Argentina, in real terms, decreased 2.5% in 2014; increased 2.7% in 2015; decreased 2.1% in 2016; increased 2.7% in 2017; and decreased 2.5% in 2018. Likewise, the INDEC carried out a review of the economic growth data corresponding to the periods from 2005 to 2015. This review exhibited a 20% difference between current measurements and those conducted by the prior administration.
In particular, the Argentine economy continues to be vulnerable to several factors, including:
- volatility in the growth rate of the economy;
- a high rate of
public spending;
government expenditures;
No assurance can be provided that a decline in economic growth or certain economic instability will not occur. In particular, the Argentine economy contracted in 2018 and 2019 and may continue to decrease in the future due to international and domestic conditions. Any such stagnation, or slowdown or increased economic and political instability could have a significant adverse effect on Grupo Galicia’s business, financial position and results of operations, and the trading price for its ADSs.
The ability of the current administration to implement proposed economic policy reforms, and the impact that these measures and any future measures taken by a new administration will have on the Argentine economy, remains uncertain.
As the date of this annual report, the impact that the reforms adopted by the MacriFernández administration will have on the Argentine economy as a whole, and the financial sector in particular, cannot be predicted. In addition, it is currently unclear what additional measures the Macri administration’s ability toFernández administration may implement all in the future and what the effects of its proposed policies and corresponding measures cannotthe same may be assured. on the Argentine economy.
Since assumingtaking office, the MacriFernández administration has announced and implemented several significant economic measures. In particular, on December 20, 2019, the Argentine National Congress passed Law No. 27,541 aimed at Social Solidarity and Productive Reactivation. Such law declared a public emergency in economic, financial, fiscal, administrative, pension, energy, health and social matters. It also delegated to the National Executive Branch, broad authority and power to take actions designed to, among other things, ensure the sustainability of the level of public debt, restructure the rate the energy system through a renegotiation of the current comprehensive tariff regime and restructure the regulatory entities for the energy system. In addition, the Fernández administration is beginning a debt restructuring process. The FX market restrictions imposed by the Fernández administration, in combination with a relatively moderate monetary and fiscal policy, reforms, including reforms relatedadditional restrictions on foreign trade and the impacts of changes to the INDEC, the foreign exchange market foreign trade, fiscal deficit reduction, the correction of certain monetary imbalances, energy crisis, corporate criminal liability, the social security system,policy could result in lower economic growth rates in Argentina for the coming years. An adverse result in the debt restructuring that the Government is carrying out could affect access to the capital market, and may affect the tax code. In 2016, Macri’s administration also was able to reach an agreement with the holdout creditors of Argentina’s outstanding debt.
In the congressional elections held on October 22, 2017, Macri’s governing coalition obtained the largest percentage of votes. His coalition, however, does not have a majority of seats in Congress, and therefore, it may be difficult to implement somegrowth of the aforementioned measures unless President Macri obtains support fromcountry, provinces and private companies. It is impossible to predict the opposition party. This creates further uncertainty as to whether the Macri administration will be able to pass further reform measures. The political uncertainty surrounding potential economic reform could lead to volatility in the market prices of securities of Argentine companies.
The fiscal, monetary and currency adjustments undertaken by the Macri administration may result in slower short-term economic growth while seeking to guide the economy toward a sustained path for growth in the medium-term. Immediately after the foreign exchange controls were lifted on December 16, 2015, the dismantling of the multiple exchange regime resulted in the official Peso exchange rate (available only for certain types of transactions) falling in value by 40.1%, and the Peso-Dollar exchange rate fell to Ps.13.76 to US$1.00 on December 17, 2015. The Argentine Central Bank allowed the Peso to float with limited intervention until March 2018.As a result of the exchange rate crisis that began in March 2018 and lasted throughout the rest of 2018, the Peso-Dollar exchange rate became increasingly volatile. The exchange rate crisis lasted throughout most of 2018 and by December 28, 2018, the Peso-Dollar exchange rate had increased to Ps.37.81 to US$1.00. There can be no assurance as to the short- or long-term effects of these policies on the exchange rate or the Argentine economy as a whole.
The impact thatof these measures, andas well as any future measures taken by a new administration, will havethat may be adopted, on the Argentine economy as a wholeoverall and the financial sector in particular.
In particular, cannot be predicted. Economic liberalizationeconomic intervention by current measures or future measures may be disruptive to the economy and may fail to benefit, or may harm, our business. In particular, Grupo Galicia has no control over the implementation of the reforms to the regulatory framework that governs its operations and cannot guarantee that these reforms will be implemented or that they will be implemented in a manner that will benefit its business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy and Grupo Galicia’s business, financial position and results of operations and the trading price for its ADSs.
If the high levels of inflation continue, the Argentine economy and Grupo Galicia’s financial position and business could be adversely affected.
Since 2007, the Argentine economy has experienced high levels of inflation.inflation. According to private estimates, as figures published by the INDEC were not reliable,since 2007: inflation rates increased from levels of around 10% in 2005 and 2006 to a levelArgentina has been systematically above 20% during the following years, and reached a ratemaximum of 42.3%53.8 % in 2014, decreasing2019. Moreover, between 2007 and 2015 official figures became unreliable and private estimates of inflation had to 27.2%be used (as further described below). Combined with such high inflation rates. Argentina has also displayed high volatility in 2015, mainly due toits prices during the slowdown in economic activity in Argentina and to the overvaluation of the Peso, and increasing again to around 40% in 2016 and 25% in 2017, primarilysame period, as a consequence of alternating periods in which inflation wascontrolled by pegging the adjustments made by the governmentPeso to fix certain macroeconomic imbalances, such as the dismantlingother currencies in combination with expansive monetary and fiscal policies—which lead to an over appreciation of the multiple exchange regime peso—and eliminating certain subsidies. In 2018,periods in which the devaluationPeso appreciation was adjusted, leading to the consequent acceleration of inflation.
As noted above, between 2007 and 2015, official inflation figures became unreliable. Specifically, INDEC (Índice Nacional de Estadísticas y Censos “INDEC” for its acronym in Spanish), is the only institution in Argentina with legal power to produce official national statistics. During such time period, INDEC, went through a process of major institutional and methodological reforms that led to controversies related to the reliability of the Peso led to a rise in inflation. Inflation was 47.6% asinformation it produces. In the month of January 2016, the Government of Mauricio Macri declared an administrative emergency regarding the national statistical system and INDEC that lasted, until December 31, 2018. In response2016. During such emergency time, period INDEC stopped publishing certain statistical data until it had completed a reorganization of its technical and administrative structure to this hyperinflation,recover its ability to produce relevant and sufficient information.
Despite the fact that, due to the reforms implemented in recent years, the inflation rates calculated by INDEC are generally accepted, the possibility that they may be manipulated in the future cannot be ruled out. Any such future manipulation could affect the Argentine Central Bank abandoned its annual inflation reduction goals for 2019.economy in general and the financial sector in particular.
.
In the past, inflation has materially undermined the Argentine economy and the Argentine government’s ability to generate conditions that fostered economic growth. In addition, high inflation or a high level of volatility with respect to the same may materially and adversely affect the business volume of the financial system and prevent the growth of financial intermediation activity. This, in turn, could adversely affect economic activity and employment.
In addition to the above, the accuracy of INDEC’s calculation of the CPI in Greater Buenos Aires (IPC-GBA), according to which inflation was calculated, has been questioned. In particular, concerns were historically voiced that the actual consumer and wholesale price indices may be significantly higher than those that were indicated by INDEC. In order to address these concerns, the Macri administration has implemented various personnel changes at the INDEC. The new individuals in charge have discontinued use of most previously used indices in order to review the same and, potentially, to establish new, more accurate and reliable indices. There is currently uncertainty regarding what other future measures the INDEC may adopt and the impact that such measures may have on the relationship between Argentina and the IMF and the results of operations of Grupo Galicia.
A high inflation rate also affects Argentina’s competitiveness abroad, as well as real salaries, employment rates, consumption rates and interest rates. A high level of uncertainty with regard to these economic variables, and lack of stability in terms of inflation, could lead to shortened contractual terms and affect the ability to plan and make decisions. This may have a negative impact on economic activity and on the income of consumers and their purchasing power, all of which could materially and adversely affect Grupo Galicia’s financial position, results of operations and business, and the trading price for its ADSs.
Argentina’s and Argentine companies’ ability to obtain financing and to attract direct foreign investment is limited and may adversely affect Grupo Galicia’s financial position, results of operations and business.
Argentina and Argentine companies have had limited access to foreign financing in recent years, primarily as a result of a default in December 2001 by Argentina on its debt to foreign bondholders, multilateral financial institutions and other financial institutions. Argentina settled all of its outstanding debt with the IMF in 2006, carried out a variety of debt swaps with certain bondholders between 2004 and 2010, and reached an agreement with the Paris Club in 2014. After several years of litigation, on March 1, 2016, an agreement was reached between the Argentine government and certain creditors to which the Argentine government was previously in default. This agreement consisted
On April 18, 2016, in order to make the payment to said funds and to other bondholders in similar conditions, Argentina issued bonds in an amount of US$16.5 billion, with interest rates between 6.25% and 8% and maturities of three, five, 10ten and 30thirty years. The payment of approximately US$9.3 billion to the bondholders was made on April 22, 2016, thus reaching a final solution to the Argentine debt in default.
During the remainder of 2016, 2017 and the first four months of 2018, the Argentine government continued to seek financing from international markets. Following the exchange rate crisis beginning in April 2018, however, Argentina has not been able to access the international capital markets, resulting in the Argentine government requesting a loan from the IMF (Stand-By(pursuant to a Stand-By Agreement for a total of US$57 billion). The Argentine government
In the short term, Argentina must restructure its debt with its current bondholders and the IMF, which may only drawdown on such loan to the extent it is honoring itsrequire a commitment to implement restrictive monetary and fiscal policies, which could have a significant adverse effect on Argentina’s economy and on Argentine companies or Grupo Galicia’s ability to obtain international financing, and could also adversely affect local credit conditions.If Argentina is not be able to reach an agreement with its bondholders or the IMF Argentina may default on such debt and would likely again lose access to the international financial markets. This would also have an adverse effect on the Argentine economy, including Grupo Galicia., and would likely negative impact the ability of companies, including Grupo Galicia, to obtain foreign financing.
A decline in the international prices of Argentina’s main commoditycommodities exports and an additionala real appreciation of the Peso against the Dollar could affect the Argentine economy and create new pressures on the foreign exchange market and have a material adverse effect on Grupo Galicia’s financial condition, prospects and operating results.
The reliance on the export of certain commodities, such as soy,(particularly soybeans and its by products, corn and wheat), has made the country more vulnerable to fluctuations in their prices. A decrease in commodity prices may adversely affect the Argentine government’s fiscal revenues and the Argentine economy as a whole.Given its reliance on such agricultural commodities, the country is also vulnerable to weather events—such as 2018’s drought—that may negatively affect the production of such commodities, reducing fiscal revenues and the inflow of US dollars.
In order to counterbalance and diversify its reliance on the above noted agricultural commodities as well as to add an additional source of revenue, Argentina has been focused on increasing its oil and gas exports. A long-term decrease in the international price of oil would negatively impact such oil and gas prospects and result in a decrease in foreign investment in such sectors.
A significant increase in the real appreciation of the Peso could affect Argentina’s competitiveness, substantially affecting exports, and this in turn could prompt new recessionary pressures on Argentina’s economy and a new imbalance in the foreign exchange market, which could exacerbate exchange rate volatility. Given the strong reliance on revenues from taxes on exports, a significant appreciation of the real exchange rate could substantially reduce Argentine public sector’s tax revenues in real terms. The occurrence of the foregoing could exacerbate the existing inflationary environment and potentially materially and adversely affect the Argentine economy, as well as Grupo Galicia’s financial condition and operating results and, thus, the trading prices for its ADSs.
Volatility in the regulatory framework could have a material and adverse effect on Argentina’s economy in general, and on Grupo Galicia’s financial position, specifically.
From time to time the Argentine government has enacted several laws amending the regulatory framework governing a number of different activities as a measure to stimulate the economy, some of which have had adverse effects on Grupo Galicia’s business. Although the currentformer administration has eliminated some of these regulations, political and social pressures could inhibit the Argentine government’s implementation of policies designed to generate growth and enhance consumer and investor confidence.
No assurance can be provided that future regulations, and especially those related to the financial system, will not materially and adversely affect the assets, revenues and operating income of private sector companies, including Grupo Galicia, the rights of holders of securities issued by those entities, or the value of those securities.
The lack of regulatory foresight could impose significant limitations on activities of the financial system and Grupo Galicia’s business, and would generate uncertainty regarding its future financial position and result of operations and trading price for its ADSs.
The Argentine economy and its goods, financial services and securities markets remain vulnerable to external factors, which could affect Argentina’s economic growth and Grupo Galicia’s prospects.
The financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other countries. Although such conditions may vary from country to country, investor reactions to events occurring in one country may affect capital flows to issuers in other countries, and consequently affect the trading prices of their securities. Decreased capital inflows and lower prices in the securitiesstock market of a country may have a material adverse effect on the real economy of those countries in the form of higher interest rates and foreign exchange volatility.
During periods of uncertainty in international markets, investors generally choose to invest in high-quality assets (“flight to quality”) over emerging market assets. This has caused and could continue to cause an adverse impact on the Argentine economy and could continue to adversely affect the country’s economy in the near future.
The problems faced by the European Union’s periphery countries, resulting from a combination of factors such as low growth, fiscal woes and financial pressures, arewere particularly acute. Reestablishing financial and fiscal stability to offset thesuch low or zero growth continues to pose a challenge. As a result, the leading economies of the European Union imposed emergency economic plans in such countries, which plans are still in place. During 2018, the U.S. Federal Reserve increased the Federal Funds rate by 100 basis points and continued to cut its asset purchase and its monetary easing programs. Such changes continued to strengthen the Dollar globally, affecting commodity prices and reducing the inflow of capital to emerging market countries, including Argentina. However, during 2019 the U.S. Federal Reserve implemented several haircuts on the Federal Funds rate (1.75%-1.50% range), a preemptive measure amidst a trade war with China and the European Union, even though the U.S. economy displayed strong fundamentals—record-high employment levels, a strong economy and low inflation rates. During March 2020, the U.S. Federal Reserve decide to implement two aggressive interest-rate cuts during two unscheduled meetings: a 0.5 percentage point cut on March 3rd and a 1 percentage point cut on March 15th. This decision was made in order to help mitigate the economic consequences from the COVID-19 pandemic.
Brazil, Argentina’s main trade partner, has experienced a slight increase in GDP in recent years, increasing 1.1%1.3% in 2017 and 2018.2018 and 1.1% in 2019. Although Brazil’s economic outlook may be improving, a further deterioration of activity, a delay in Brazil’s expected economic recovery or a slower pace of economic improvement in Brazil may have a negative impact on Argentine exports and on the overall level of economic and industrial activity in Argentina, particularly with respect to the automotive industry. In addition, the inauguration of Jair Bolsonaro as the new president of Brazil has contributed to geopolitical volatility in this region as a result of his polarizing ideologies.
China, which is the main importer of Argentine raw materials, experienced an economic slowdown in 2018 asand 2019 when compared to recent years. The prices for Argentine commodities, in particular oilseeds, decreased.have displayed a falling trend in recent years. If these trends continue,this trend continues, it could affect the inflow of foreign currency into Argentina from exports. The slowdown of the Chinese economy and increased volatility of its financial markets could impact financial markets worldwide, which, in turn, could increase the cost and availability of financing both domestically and internationally for Argentine companies.
The international financial environment may also result in a devaluation of regional currencies and exchange rates, including the Peso, which would likely also cause volatility in Argentina.
A new global economic and/or financial crisis or the effects of deterioration in the current international context, could affect the Argentine economy and, consequently, Grupo Galicia’s results of operations, financial condition and the trading price for its ADSs.
A potential additional devaluation of the Peso may hinder or potentially prevent Grupo Galicia from being able to honor its foreign currency denominated obligations.
The Argentine Peso depreciated 15.6% as compared to the U.S. Dollar in 2017, 50.3% in 2018 and 36.9% in 2019 according to the official quotation of the Central Bank. If the Peso depreciated significantlyfurther depreciates against the U.S. Dollar, as has recently occurred and which could occur again in the future, itthis could have an adverse effect on the ability of Argentine companies to make timely payments on their debts denominated in or indexed or otherwise connected to a foreign currency, generate very high inflation rates, reduce real salaries significantly, and have an adverse effect on companies focused on the domestic market, such as public utilities and the financial industry. Such a potential devaluation could also adversely affect the Argentine government’s capacity to honor its foreign debt, with adverse consequences for Grupo Galicia’s and Banco Galicia’s businesses, which could affect Grupo Galicia’s capacity to meet obligations denominated in a foreign currency which, in turn, could have a material adverse effect on the trading prices for Grupo Galicia’s ADSs.
In 2017, the Dollar to Peso exchange rate increased 18% as compared to 2016. This trend accelerated in 2018, with an increase of 113% from December 2017 to December 2018. Since December 31, 2018, the local currency has depreciated by 14%. Any further depreciation of the Peso may have an adverse impact on the business of Grupo Galicia and on the trading prices for its ADSs.
Additionally, the Central Bank may intervene in the foreign exchange market to influence exchange rates. Purchases of Pesos by the Central Bank could result in a decrease of its international reserves. A significant decrease in the Central Bank’s international reserves may have an adverse impact on Argentina’s ability to withstand external shocks to the economy, and any adverse effects to the Argentine economy could, in turn, adversely affect the financial position and business of Grupo Galicia and its subsidiaries.
Finally, as a result
In order to control the depreciation of the Peso, on September 1, 2019 the Executive Branch introduced capital controls through decree No. 609/2019, whose validity was extended indefinitely by the government of Fernández through Decree No. 91/2019 and Communication "A" 6854 and 6856 of the hyperinflationCentral Bank. These controls include the need to obtain authorization from the Central Bank to purchase foreign currency in excess of US$200 per month per person, and the mandatory liquidation of exporters’ foreign exchange earnings in the local market within five days, among other measures. This allows the Central Bank to exercise control over the Peso and therefore to prevent the Argentine currency from depreciating.
A depreciation of the Peso could adversely affect the Argentine economy and Grupo Financiero Galicia’s financial condition, its business and its ability to service its existing debt obligations. Moreover, an acceleration of inflation caused by thean exchange rate crisis would raise the costs associated with Grupo Galicia’s subsidiaries servicing their foreign currency-denominated, debt will increase, which could increase Grupo Galicia’s costs and therefore have a material adverse effect on Grupo Galicia’s financial condition and results of operations.
Changes or new regulations in the Argentine foreign exchange market may adversely affect the ability and the manner in which Grupo Galicia repays its obligations denominated in, indexed to or otherwise connected to a foreign currency.
Since December 2001, different government administrations have established and implemented various restrictions on foreign currency transfers (both in respect of transfer into and out of Argentina). AlthoughSuch is the Macri administration eliminatedcase of the current measures that limit the ability of residents to purchase foreign currency for saving purposes and by capping the amount that can be purchased by the general public at US$200 per month and imposing a 30% tax on all such restrictions, Grupo Galicia cannot assure that such measures will not be implemented againforeign currency purchases, as well as on any purchases in foreign currency made with debit or credit cards and on the future.purchase of international flights, hotels or tourism packages.
The impact that the newthese measures or potential future measures will have on the Argentine economy and Grupo Galicia is uncertain. No assurance can be provided that the regulations will not be amended, or that no new regulations will be enacted in the future imposing greater limitations on funds flowing into and out of the Argentine foreign exchange market. Any such new measures, as well as any additional controls and/or restrictions, could materially affect Grupo Galicia’s ability to access the international capital markets and may undermine its ability to make payments of principal and/or interest on its obligations denominated in a foreign currency or transfer funds abroad (in total or in part) to make payments on its obligations (which could affect Grupo Galicia’s financial condition and results of operations). Therefore, Argentine resident or non-resident investors should take special notice of these regulations (and their amendments) that limit access to the foreign exchange market. In the future Grupo Galicia may be prevented from making payments in U.S. Dollars and/or making payments outside of Argentina due to the restrictions in place at that time in the foreign exchange market and/or due to the restrictions on the ability of companies to transfer funds abroad.
It may be difficult to effect service of process against Grupo Galicia’s executive officers and directors, and foreign judgments may be difficult to enforce or may be unenforceable.
Service of process upon individuals or entities which are not resident in the United States may be difficult to obtain in the United States. Grupo Galicia and its subsidiaries are companies incorporated under the laws of Argentina. Most of their shareholders, directors, members of the Supervisory Syndics’ Committee, officers, and some specialists named herein are domiciled in Argentina and the most significant part of their assets is located in Argentina. Although Grupo Galicia has an agent to receive service of process in any action against it in the United States with respect to its ADSs, none of its executive officers or directors has consented to service of process in the United States or to the jurisdiction of any United States court. As a result, it may be difficult to effect service of process against Grupo Galicia’s executive officers and directors. Additionally, under Argentine law, the enforcement of foreign judgments will only be allowed if the requirements in sections 517 to 519 of the National Code of Civil and Commercial Procedures are met or if it is one of the powers governed by provincial law, the requirements in the applicable local code of procedure,procedures are met, and provided that the foreign judgment does not infringe on concepts of public policy in Argentine law, as determined by the competent courts of Argentina. As such, an Argentine court may find that the enforcement in Argentina of a foreign judgment (including a U.S. court) that requires payment be made by an Argentine individual to holders of its foreign currency-denominated securities outside of Argentina is contrary to the public policy if, for instance, there are legal restrictions in place prohibiting Argentine debtors from transferring foreign currency abroad to pay off debts.
The intervention of the Argentine government in the electric power sector could have a material adverse impact on the Argentine economy, which may have a material adverse impact on Grupo Galicia’s results of operations.
Historically, the Argentine government has played an active role in the electric power sector through the ownership and management of state-owned companies engaged in the generation, transmission and distribution of electric power. To address the Argentine economic crisis of 2001 and 2002, the Argentine government adopted Law No.25,561 and other regulations, which made a number of material changes to the regulatory framework applicable to the electric power sector and have significantly distorted supply and demand in the sector. These changes included the freezing of distribution margins, the revocation of adjustment and inflation indexation mechanisms for tariffs, a limitation on the ability of electric power distribution companies to pass on to the consumer increases in costs due to regulatory charges and the introduction of a new price-setting mechanism in the wholesale electricity market, all of which had a significant impact on electric power generators and caused substantial price differences within the market.
Since the Macri
The former administration assumed office, the Argentine government has initiated significant reformsin the electric power sector. As part of such reforms, the Argentine government has takensuch administration took actions designed to guarantee the supply of electric power in Argentina, such as instructing the Ministry of Energy and Mining to develop and implement a coordinated program to guarantee the quality of the electric power system and ration individuals’ and public entities’ consumption of energy by increasing tariffs. In addition,the past, the Argentine government and certain provincial governments have approved significant price adjustments and tariff increases applicable to certain generation and distribution companies, resulting in an increase in cost of energy prices for consumers.
On March 31, 2017, the Ministry of Energy and Mining released a new tariff schedule that increased the price consumers pay for electricity and natural gas by 36% with the goal of reducing government subsidies for energy consumption as part of efforts to reduce the Argentine government’s fiscal deficit. Following a public hearing, the Minister of Energy and Mining released a revised tariff schedule in December 2017, which further increased rates between 34% and 57% (depending on the province) for natural gas and approximately 34% for other electricity. On December 28, 2018, the government further increased gas and electricity tariffs to 40% and 55%, respectively, which will bewere implemented during the 2019 fiscal year.2019.
As a result, there has been a significant increase in the cost of energy in Argentina, which could have a material adverse effect on consumers’ disposable income, and therefore, Grupo Galicia’s financial condition and results of operations and the trading price of our ADSs.
The measures adopted by the Argentine government and the claims filed by workers on an individual basis or as part of a labor union action may lead to pressures to increase salaries or additional benefits, which would increase companies’, including Grupo Galicia’s, operating costs. Additionally, labor union activity could lead to strikes or work stoppages, which may materially and adversely affect Grupo Galicia’s results of operations.
In the past, the Argentine government has passed laws and regulations requiring private sector companies to maintain certain salary levels and provide their employees with additional work-related benefits. Furthermore, employers, both in the public sector and in the private sector, have been experiencing intense pressure from their personnel, or from the labor unions representing such personnel, demanding salary increases and certain benefits for the workers, given the prevailing high inflation rates. Specifically, during the early months of 2019 the Argentine union that represents employees in the banking sector declared general strikes. These strikes did not have a direct effect on banks but did impact the clients of banks who were not able to access to banks’ branches. Strikes similar to the one that took place in 2019, however, can deteriorate the perception the public has of banks, which could have a reputational cost for us. Labor pressure is active in Argentina andcan also potentially lead to further strikes or work stoppages if demands are not satisfied, which could have a material and adverse effect on Grupo Galicia’s operations.
There can be no assurance that the Argentine government will not adopt measures in the future mandating salary increases or the provision of additional employee benefits, or that employees or their unions will not exert pressure on companies, such as Grupo Galicia, in demanding the implementation of such measures. The implementation of any such measures could have a material and adverse effect on Grupo Galicia’s expenses and business, results of operations and financial condition and, thus, on the trading prices for its ADSs.
High levels of government expenditures in Argentina could generate long lasting adverse consequences for the Argentine economy.
Since 2007, Argentina increased its spending to GDP to reach a maximum of 24% in 2015, quite above the ratio of the rest of the countries in the region. Since then, a decreasing trend in expenditures was observed until the year 2019.
Despite the trend of recent years, if government expenditures increases to an extent that outpaces Argentina’s revenues, the country’s fiscal deficit is likely to increase, and the Argentine government may be forced to seek assistance from the Central Bank and/or the National Administrator of Pensions.
Any such increase in Argentina’s deficit could have a negative effect on the government’s ability to access to the long term financial markets, and in turn, could limit the access to such markets for Argentine companies, such as Grupo Galicia and its subsidiaries. The same may have a material and adverse effect on Grupo Galicia’s financial condition and results of operations.
The novel coronavirus could have an adverse effect on our business operations.
In late December 2019 a notice of pneumonia originating from Wuhan, Hubei province (COVID-19, caused by a novel coronavirus) was reported to the World Health Organization, with cases soon confirmed in multiple provinces in China, as well as in other countries. Several measures were undertaken by the Chinese government and other countries to control the coronavirus, including the use of quarantine (with approximately 60 million people affected in China), travel restrictions to and from China by certain air carriers and foreign governments. Since such initial outbreak, COVID-19 has been declared a pandemic and the virus spread and continues to spread globally, as of the date of this annual report, affecting more than 148 countries and territories around the world, including Argentina. To date, COVID-19s has caused significant social and market disruption.
The long-term effects to the global economy and to Grupo Galicia of epidemics, pandemics and other public health crises, such as COVID-19, are difficult to assess or predict, and may include risks to employee’s health and safety, and reduce our business operations. Any prolonged restrictive measures put in placeto control an outbreak of a contagious disease or virus or other adverse public health development in any of our targeted markets may have a material and adverse effect on our business operations. We may also be affected by a decline in the demand of our services, or the need to implement policies limiting the efficiency and effectiveness of our operations, including the implementation of work from home policies. The impact epidemics, pandemics and other health crises, such as COVID-19 may have on the methods we use to sell and distribute our products and services, on our human capital resources productivity, and on the ability of our suppliers and consultants to provide goods and services and other resources in a timely manner to support our business, are also impossible to assess or predict at this moment.
Furthermore, certain measures imposed by the local administration, such as travel restrictions, border closures and lock-down measures which have forced us to set in place work from home arrangements for our employees, may also have a material impact on our ability to operate and achieve our business goals.
Considering the current health crisis, and the related halt in economy the world is facing, we may also experience higher default rates on the financings granted to our clients, liquidity deficiencies, difficulties in our ability to service our debts and other financial obligations. We may also face difficulties in trying to access to debt and capital markets and be forced to refinance preexisting financing arrangements. Although the actual impact is impossible to assess, the occurrence of any of such events could have a material adverse effect on our operations.
Finally, it is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. Neither can we predict how the disease will evolve (and potentially, spread) in Argentina, nor anticipate future restrictions the Argentine government may impose.
The Argentine economy could be negatively affected by external factors that have an impact in the whole world, such as COVID-19’s spread and the consequent implementation of measures destined to deal with the mentioned pandemic, and its economic impact both on a local and an international level.
The Argentine economy is vulnerable to external factors. In this sense, most economies in the world (including Argentina and its main trade partners) are being affected by the spread of COVID-19. The virus’ progression, which has been declared a pandemic by the World Health Organization, has led to the application of measures that have a severe economic impact.
In Argentina, these measures include the implementation of a generalized quarantine with the intention of hindering the virus’ advancement and to avoid the collapse of the local health system. This entails a halt in most economic activities (excluding essential ones, such as healthcare services, manufacturing of food products, medical equipment or pharmaceuticals, supermarkets and pharmacies, security forces) and the suspension of road and air travels, among others. These measures, and any others the Argentine government might implement in the future, have a negative and direct impact on the country’s economy, by reducing both aggregate supply and demand.
Additionally, the progression of the virus and the consequent measures destined to fight the virus could entail a reduction in the economic growth in any of Argentina’s trade partners (such as Brazil, the European Union, China and the United States). The contraction of the economies of our trade partners could have a sizeable and adverse impact on Argentina’s trade balance and economy through a fall in the demand for Argentine exports or a decline in the prices of agricultural commodities.
On the other hand, higher uncertainty levels associated with the progress of a global pandemic implies the strengthening of the U.S. Dollar and the devaluation of the currencies of emerging countries, Argentina’s trade partners included. This could increase the financial pressure on the Argentine peso and lead to a devaluation of the local exchange rate, or cause the loss of competitiveness against our trade partners.
Any of these potential risks to the Argentine economy could have a significant and negative effect on the business, financial situation and operational results of the Company.
Failure to adequately address actual and perceived risks arising from institutional deterioration and corruption could adversely affect Argentina’s economy and financial position and the ability of Argentine companies to attract foreign investment.
The lack of a solid institutional framework and corruption have been identified as serious problems for Argentina and may continue to be. In the Transparency International’s Corruption Perceptions Index 2019, which measures corruption in 180 countries, Argentina ranked No.66. In the World Bank’s “Doing Business” report in 2019, Argentina Ranked No.119 out of 190 countries. The failure to address these issues could increase the risk of political instability, distort the decision-making process, adversely affect Argentina’s international reputation and its ability and the ability of its companies to attract foreign investment.
A deterioration in the Argentine reputation could have a material and adverse effect on Grupo Galicia’s financial condition and results of operations.
Risk Factors Relating to the Argentine Financial System
The stability of the Argentine financial system is dependent upon the ability of financial institutions, including Banco Galicia, the main subsidiary of Grupo Galicia, to maintain and increase the confidence of depositors.
The measures implemented by the Argentine government in late 2001 and early 2002, in particular the restrictions imposed on depositors to withdraw money freely from banks and the pesification and restructuring of their deposits, were strongly opposed by depositors due to the losses on their savings and undermined their confidence in the Argentine financial system and in all financial institutions operating in Argentina.
If depositors once again withdraw their money from banks in the future, there may be a substantial negative impact on the manner in which financial institutions, including Banco Galicia, conduct their business, and on their ability to operate as financial intermediaries. Loss of confidence in the international financial markets may also adversely affect the confidence of Argentine depositors in local banks.
An adverse economic situation, even if it is not related to the financial system, could trigger a massive withdrawal of capital from local banks by depositors, as an alternative to protect their assets from potential crises. Any massive withdrawal of deposits could cause liquidity issues in the financial sector and, consequently, a contraction in credit supply.
The occurrence of any of the above could have a material and adverse effect on Grupo Galicia’s expenses and business, results of operations and financial condition and, thus, on the trading prices for its ADSs.
If financial intermediation activity volumes relative to GDP are not restored to significant levels, the capacity of financial institutions, including Banco Galicia, the main subsidiary of Grupo Galicia, to generate profits may be negatively affected.affected.
As a result of the 2001-20021999-2002 financial crisis (in which the Argentine economy fell 18.4%), the volume of financial intermediation activity dropped dramatically: private sector credit plummeted from 24% of GDP in December 2000 to 7.7% in June 2004 and total deposits as a percentage of GDP fell from 31% to 23.2% during the same period. The depth of the crisis and the effect it had on depositors’ confidence in the financial system created uncertainty regarding its ability to act as an intermediary between savings and credit. Furthermore, the ratio of the total financial system’s private-sector deposits and loans to GDP remains low when compared to international levels and continues to be lower than the periods prior to the crisis, especially in the case of private-sector deposits and loans, which amounted to 20.7%12.8% and 10.6%8.6% of GDP, respectively, as of December 31, 2018.2019.
There is no assurance that financial intermediation activities will continue in a manner sufficient to reach the necessary volumes to provide financial institutions, including Banco Galicia, with sufficient capacity to generate income, or that those actions will be sufficient to prevent Argentine financial institutions, such as Banco Galicia, from having to assume excessive risks in terms of maturity mismatches. Under these circumstances, for an undetermined period of time, the scale of operations of Argentine-based financial institutions, including Banco Galicia, their business volume, the size of their assets and liabilities or their income-generation capacity could be much lower than before the 1999-2002 crisis which may, in turn, impact the results of operations of Banco Galicia and, potentially, the trading price for Grupo Galicia’s ADSs.
The Argentine financial system’s growth and income, including that of Banco Galicia, the main subsidiary of Grupo Galicia, depend in part on the development of medium- and long-term funding sources.
In spite of the fact that the financial system’s and Banco Galicia’s deposits continue to grow, they are mostly demand or short-term time deposits and the sources of medium- and long-term funding for financial
institutions are currently limited. If Argentine financial institutions, such as Banco Galicia, are unable to access adequate sources of medium and long-term funding or if they are required to pay high costs in order to obtain the same and/or if they cannot generate profits and/or maintain their current volume and/or scale of their business, this may adversely affect Grupo Galicia’s ability to honor its debts.
Argentine financial institutions (including Banco Galicia) continue to have exposure to public sector debt (including securities issued by the Argentine Central Bank) and its repayment capacity, which in periods of economic recession, may negatively affect their results of operations.
Argentine financial institutions continue to be exposed, to some extent, to the public sector debt and its repayment capacity. The Argentine government’s ability to honor its financial obligations is dependent on, among other things, its ability to establish economic policies that succeed in fostering sustainable growth and development in the long term, generating tax revenues and controlling public expenditures, which could, either partially or totally, fail to take place.
Banco Galicia’s exposure to the public sector as of MarchDecember 31, 2019 was Ps.124,058Ps.110,957 million, representing approximately 22%19% of its total consolidated assets and 240%142% of its shareholders’ equity. Of this total, Ps.99,480Ps.58,141 million were Argentine Central Bank debt instruments, Ps.24,535Ps.22,759 million corresponded to Argentine government securities, while the remaining Ps.43Ps.30,057 million corresponded to other receivables resulting from financial brokerage. As a result, Grupo Galicia’s income-generating capacity may be materially impacted or may be particularly affected by the Argentine public sector’s repayment capacity and the performance of public sector bonds, which, in turn, is dependent on the factors referred to above. Banco Galicia’s ability to honor its financial obligations may be adversely affected by the Argentine government’s repayment capacity or its failure to meet its obligations in respect of Argentine government obligations owed to Banco Galicia.
The Consumer Protection Law may limit some of the rights afforded to Grupo Galicia and its subsidiaries.
Argentine Law No.24,240 (the(as amended by Law No. 26,361, Law No. 27,250, Law No. 27,265 and Law No. 27,266, the “Consumer Protection Law”) sets forth a series of rules and principles designed to protect consumers, which include Banco Galicia’s customers. The Consumer Protection Law was amended by Law No.26,361 on March 12, 2008 (as amended by Laws No.27,250 and 27,265 in 2016) to expand its applicability, rights granted to consumers and the penalties associated with violations thereof. Additionally, Law No.25,065 (as amended by Law No.26,010 and Law No.26,361, the “Credit Card Law”) also sets forth public policy regulations designed to protect credit card holders. On October 1, 2014, a new Civil and Commercial Code was sanctioned, which captured the principles of Consumer Protection Law and established their application to banking agreements.
On September 17, 2014, Law No.26,993 was enacted, which created a “System to Solve Disputes in Consumer Relationships”, introducing new administrative and legal procedures within the framework of the Consumer Protection Law; namely, an administrative and a judicial regime for such matters.
The application of both the Consumer Protection Law and the Credit Card Law by administrative authorities and courts at the federal, provincial and municipal levels has increased. This trend has led to an increase in general consumer protection levels. In the event that Grupo Galicia and its subsidiaries are found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of Grupo Galicia and its subsidiaries’ rights, for example, with respect to their ability to collect payments due from services and financing provided by Grupo Galicia or its subsidiaries, and adversely affect their financial results of operations. There can be no assurance that court and administrative rulings based on the newly enacted regulation or measures adoptedadopted. by the enforcement authorities will not increase the degree of protection given to its debtors and other customers in the future, or that they will not favor the claims brought by consumer groups or associations.
This may prevent or hinder the collection of payments resulting from services rendered and financing granted by Grupo Galicia’s subsidiaries, which may have an adverse effect on their results and operations.
Class actions against financial institutions for an indeterminate amount may adversely affect the profitability of the financial system and of Banco Galicia, specifically.
Certain public and private organizations have initiated class actions against financial institutions in Argentina, including Banco Galicia. Class actions are contemplated in the Argentine National Constitution and the Consumer Protection Law, but their use is not regulated. The courts, however, have admitted class actions in spite of lacking specific regulations, providing some guidance with respect to the procedures for the same. These courts have admitted several complaints filed against financial institutions to defend collective interests, based on arguments that object to charges applied to certain products, applicable interest rates and the advisory services rendered in the sale of government securities, among others.
Final judgments entered against financial institutions under these class actions may affect the profitability of financial institutions in general and of Banco Galicia specifically in relation to class actions filed against Banco Galicia. For further information regarding class actions brought against Banco Galicia, please refer to the Item 8. “Financial Information”─A. “Consolidated Statements and Other Financial Information”—“Legal Proceedings”— “Banco Galicia”.
Administrative procedures filed by the tax authorities of certain provinces against financial institutions, such as Banco Galicia (the primary subsidiary of Grupo Galicia) and amendments to tax laws applicable to Grupo Galicia could generate losses for Grupo Galicia.
City of Buenos Aires tax authorities, as well as certain provincial tax authorities, have initiated administrative proceedings against financial institutions in order to collect higher gross income taxes from such financial institutions beginning in 2002 and onward.
Although Banco Galicia believes it has met its tax obligations regarding current regulations and has properly recorded provisions for those risks based on the opinions and advice of its external legal advisors and pursuant to the applicable accounting standards, certain risks may render those provisions inadequate. Tax authorities may not agree with Grupo Galicia’s tax treatment, possibly leading to an increase in its tax liabilities.
Moreover, amendments to existing regulations may increase Grupo Galicia’s tax rate and a material increase in the tax burden could adversely affect its financial results.
Risk Factors Relating to Us
Grupo Galicia may be unable to repay its financial obligations or dividends due to a lack of liquidity it may suffer because of being a holding company.
Grupo Galicia, as a holding company, conducts its operations through its subsidiaries. Consequently, it does not operate or hold substantial assets, except for equity investments in its subsidiaries. Except for such assets, Grupo Galicia’s ability to invest in its business development and/or to repay obligations is subject to the funds generated by its subsidiaries and their ability to pay cash dividends. In the absence of such funds, Grupo Galicia may be forced to resort to financing options at unappealing prices, rates and conditions. Additionally, such financing could be unavailable when Grupo Galicia may need it.
Grupo Galicia’s subsidiaries are under no obligation to pay any amount to enable Grupo Galicia to carry out investment activities and/or to cancel its liabilities or to give Grupo Galicia funds for such purposes. Each of the subsidiaries is a legal entity separate from Grupo Galicia, and due to certain circumstances, legal or contractual restrictions, as well as to the subsidiaries’ financial condition and operating requirements, Grupo Galicia’s ability to receive dividends and its ability to develop its business and/or to comply with payment obligations could be limited. Under certain Central Bank regulations, Banco Galicia has restrictions relating to dividend distributions.
Notwithstanding the fact that the repayment of such obligations could be afforded by Grupo Galicia through other means, such as bank loans or new issues in the capital market, investors should take notice of the above, prior to deciding on their investment in equity in Grupo Galicia. For further information on dividend distribution restrictions, see Item 5. “Operating and Financial Review and Prospects”─B. “Liquidity and Capital Resources”.
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Notwithstanding the foregoing, due to the regulations recently passed by the Argentine Central Bank within the framework of the measures taken by the government to respond to the COVID-19, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020.
In the context of the COVID-19 outbreak, the Argentine Central Bank restricted the ability of Argentine financial institutions to distribute dividends
In the context of the ongoing COVID-19 pandemic, the Argentine Central Bank issued on March 19, 2020, Communication “A” 6939, which suspended the ability of Argentine financial institutions to distribute dividends until June 30, 2020, in order to maintain the lending capacity of the financial institutions.
As the measures taken by the administration to control the fallout from COVID-19 are recent, uncertain and changing rapidly, it is difficult to predict the full impact of full measures on Grupo Financiero Galicia and its subsidiaries, nor can we predict whether Grupo Financiero Galicia would be able to make contributions to its subsidiaries as a consequence of this measure. The ongoing evolution of this pandemic could result in a material adverse effect on our business, financial condition and results of operations.
Corporate governance standards and disclosure policies that govern companies listing their shares pursuant to the public offering system in Argentina may differ from those regulating highly developed capital markets, such as the U.S. As a foreign private issuer, Grupo Galicia applies disclosure policies and requirements that differ from those governing U.S. domestic registrants.
Argentine disclosure requirements are more limited than those in the United States and differ in important respects. As a foreign private issuer, Grupo Galicia is subject to different disclosure policies and other requirements than a domestic U.S. registrant. For example, as a foreign private issuer in the U.S., Grupo Galicia is not subject to the same requirements and disclosure policies as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue financial statements, report on significant events and the standards applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants.
In addition, although Argentine laws provide for certain requirements that are similar to those prevailing in the U.S. in relation to publicly listed companies (including, for example, those related to price manipulation), in general, applicable Argentine laws are different to those in the U.S. and in certain aspects may provide different or fewer protections or remedies as compared to U.S. laws. Further, Grupo Galicia relies on exemptions from certain Nasdaq rules that are applicable to domestic companies.
Accordingly, the corporate information available about Grupo Galicia is not the same as, and may be more limited than, the information available to shareholders of a U.S. company.
The price of Grupo Financiero Galicia’s ordinary shares may fluctuate significantly, and your investment may decline in value.
The price of Grupo Financiero Galicia´s ordinaryshares may fluctuate significantly in response to several factors, many of which are beyond our control, including those described in this annual report under “Risk Factors Relating to Argentina” and “Risk Factors Relating to the Argentine Financial System”.
The stock markets in general, and the shares of emerging market in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies involved. Grupo Financiero cannot assure that any trading price or valuation will be sustained. These factors may materially and adversely affect the market price of our ordinary shares, which may limit or prevent investors from readily selling Grupo Financiero’s ordinary shares and may otherwise affect liquidity, regardless of Grupo Financiero Galicia’s operating performance.
Market fluctuations, as well as general political and economic conditions in the markets in which we operate, such as recessions or currency exchange rate fluctuations, may also adversely affect the market price of Grupo Financiero Galicia’s ordinary shares.
Adverse conditions in the credit, capital and foreign exchange markets may have a material adverse effect on Grupo Galicia’s business, financial position and results of operations and adversely impact it by limiting its ability to access funding sources.
Grupo Galicia may sustain losses relating to its investments in fixed- or variable-income securities on the exchange market and its monetary position due to, among other reasons, changes in market prices, defaults and fluctuations in interest rates and in exchange rates. A deterioration in the capital markets may cause Grupo Galicia to record net losses due to a decrease in the value of its investment portfolios, in addition to losses caused by the volatility in financial market prices, even if the economy overall is not affected. Any of these losses could have an adverse effect on Grupo Galicia’s results of operations.
Due
The occurrence of an operational risk impacting any of Grupo Galicia’s businesses, could disrupt its business functions and have a negative impact on its results of operations.
As with other financial institutions, operational risks could arise in any of Grupo Galicia’s businesses. These risks may include losses resulting from inadequate or failed internal and external processes, systems or human error, fraud, the effects of natural or man-made catastrophic events (such as natural disasters or pandemics) or from other external events. Exposure to such events could disrupt Grupo Galicia’s systems and operations significantly, which may result in financial losses and reputational damage.
Pandemics and other material public health problems could result in social, economic or labor instability in the world and domestically and disrupt the operations of our business. For example, the COVID-19 pandemic has resulted in travel restrictions and extended shutdowns of certain businesses in many regions.
Mass employee absences and/or absences of certain key personnel could strain our ability to continue to operate seamlessly.
The main risk factors identified in the last risk assessment undertaken by our Risk Management Division were system failures, adverse legal decisions and economic losses generated by fraud. Although we have implemented numerous controls to avoid the occurrence of inefficient or fraudulent operations, errors can occur and compound even before being detected and corrected. In addition, some of our transactions are not fully automatic, which may increase the risk of human error or manipulation, and it may be difficult to detect losses quickly. The occurrence of any one or more of the above events could have a material adverse impact on our business, financial condition and results of operations.
An increase in cybersecurity breaches or fraudulent and other illegal activity involving Grupo Galicia or its subsidiaries could lead to reputational damage to Grupo Galicia’s adoption(or its subsidiaries’) brands and could reduce the use and acceptance of IFRS beginning January 1, 2018, Grupo Galicia’s internal controls over financial reporting may not be effective, resulting in increased operational costs to comply with its financial reporting obligations,and its subsidiaries’ products, therefore adversely affectiveaffecting its business and results of operations and financial reporting process.operations.
Grupo Galicia adopted IFRS effective as
The business of January 1, 2018 and Grupo Galicia’s financial statements for the year ended December 31, 2018 are its first financial statements prepared in accordance with IFRS. In connection with this transition, Grupo Galicia has faced challenging and complex changes to its accounting and financial reporting procedures. The implementationmany of Grupo Galicia’s existing internal control mechanismssubsidiaries depends on the efficient and corporate governance processes in lightuninterrupted operation of its adoptiondata processing systems, its platforms for the exchange of IFRSinformation and its digital networks. Many of Grupo Galicia’s subsidiaries have access to a large amount of confidential information about their respective clients. Therefore, cybersecurity breaches represent a potential risk for Grupo Galicia.
Cybersecurity breaches can result in, for example, identity fraud, phishing, ransomware, information leaks, APT (Advanced Persistent Threat), DDoS Attacks (Distributed Denial of Service) or the theft of sensitive and confidential information, and may not be effective. As a result,affect negatively the security of information that is stored and transmitted through the information systems and network infrastructure of Grupo Galicia may have to invest significant time and financial resources to restructuring its internal controls and corporate governance processes to comply with its financial reporting obligations, thus resulting in increased operational costs and therefore adversely affectingnegatively affect the reputation of Grupo Galicia’s resultsbrands, thereby causing existing and potential clients to refrain from conducting business with Grupo Galicia’s subsidiaries.
AsIn spite of July 1, 2018, the Peso qualifies as a currency of a hyperinflationary economy, andall existing security measures, Grupo Galicia is requiredcannot provide any assurance that the systems are invulnerable to apply inflationary adjustmentscybersecurity breaches or that the mentioned measures will be successful in protecting against any such breach. In addition, any of the aforementioned events could lead to an increase in compliance costs for Grupo Galicia’s subsidiaries. If any of the above described events were to occur, it could lead to monetary losses and reputational damage to Grupo Galicia’s brands, which could reduce the use and acceptance of its financial statements, which adjustments couldproducts, greater regulation, and increased compliance costs, therefore adversely affect its financial statements,business and results of operations and financial condition.
Pursuant to IAS 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated in a suitable general price index to control for the effects of changes. IAS 29 does not prescribe when hyperinflation arises,but rather provides for several characteristics indicating hyperinflation in an economy. In addition, the IASB does not identify specific hyperinflationary jurisdictions. In June 2018, the International Practices Task Force of the Centre for Quality, which monitors “highly inflationary countries”, categorized Argentina as a country with a projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present. Argentine companies applying IFRS are required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018. In addition, certain regulatory authorities, such as the Argentine Securities Commission
(Comisión Nacional de Valores) (“CNV”), have required that financial statements submitted to the CNV for the periods ended on and after December 31, 2018 to be restated for inflation in accordance with IAS 29.
For purposes of the determination of the indexation for tax purposes, Law No.27,468, enacted on December 4, 2018, substituted the Wholesale Price Index for CPI and modified the standards triggering tax indexation procedures. For the three fiscal years beginning January 1, 2018, such tax indexation will be applicable if the variation of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020. The tax indexation determined during any such year will be allocated as follows: 1/3 in that same year,operation and the remaining 2/3 in equal parts in the following two years. From January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.trading price for its ADSs.
Grupo Galicia cannot predict the full impact of the application of such tax indexation procedures and the related adjustments on its financial statements or the effects of such tax indexation procedures on its business, results of operations and financial condition.
Grupo Galicia’s subsidiaries estimate and establish reserves for potential credit risk or future credit losses, which may be inadequate or insufficient, and which may, in turn, materially and adversely affect its financial position and results of operations.
Pursuant to the implementation of IFRS 9, Grupo Galicia’s subsidiaries estimate and establish reserves for potential credit risk and losses related to changes in the levels of income of debtors/borrowers, increased rates of inflation, increased levels of non-performing loans or an increase in interest rates. This process requires a complex methodology mixing probability of default (“PD”), loss given default (“LGD”) and subjective analysis,exposure at default (“EAD”), including economic projections and assumptions regarding the ability of debtors to repay their loans.
Therefore, if in the future Grupo Galicia’s subsidiaries are unable to effectively control the level of quality of their loan portfolio, if loan loss reserves are inadequate to cover future losses, or if they are required to increase their loan loss reserves due to an increase in the amount of their non-performing loans, the financial position and the results of operations of Grupo Galicia’s subsidiaries may be materially and adversely affected.
If Grupo Galicia’s subsidiaries should fail to meet regulatory standards or expectations or detect money laundering and other illegal or inappropriate activities in a comprehensive or timely manner,manner. Grupo Galicia’sFinanciero Galicia´s subsidiaries may incur fines, penalties, reputational harm and other negative consequences.
Grupo Financiero Galicia’s subsidiaries must be in compliance with all applicable laws against money laundering, funding of terrorist activities and other regulations. These laws and regulations require, among other things, that Grupo Galicia’s subsidiaries adopt and implement control policies and procedures which involve “know your customer” principles that comply with the applicable regulations and reporting suspicious or unusual transactions to the applicable regulatory authorities. As such, Grupo Galicia’s subsidiaries maintain systems and procedures designed to ensure that they comply with applicable laws and regulations. However, Grupo Galicia’s subsidiaries are subject to heightened compliance and regulatory oversight and expectations, particularly due to the evolving and increasing regulatory landscape that they operate in. Further, Grupo Galicia’s subsidiaries could become subject to future regulatory requirements beyond those currently proposed, adopted or contemplated. The cumulative effect of all of the legislation and regulations on their business, operations and profitability remains uncertain. This uncertainty necessitates that Grupo Galicia’s subsidiaries make certain assumptions with respect to the scope and requirements of the proposed rules in their business planning. If these assumptions prove incorrect, Grupo Galicia’s subsidiaries could be subject to increased regulatory and compliance risks and costs as well as potential reputational harm.
In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings in different jurisdictions. Also, the laws and regulations in jurisdictions in which Grupo Galicia’s subsidiaries operate may be different or even conflict with each other as to the products and services offered by Grupo Galicia’s subsidiaries or other business activities Grupo Galicia’s subsidiaries may engage in, which can lead to compliance difficulties or issues.
Furthermore, many legal and regulatory regimes require Grupo Galicia’s subsidiaries to report transactions and other information to regulators and other governmental authorities,authorities’ self-regulatory organizations, exchanges, clearing houses and customers. Grupo Galicia’sFinanciero Galicia´s subsidiaries are also required to withhold funds and make various tax-related payments, relating to their own tax obligations and those of their customers. Grupo Galicia’s subsidiaries
may be subject to fines, penalties, restrictions on our business, or other negative consequences if they do not timely, completely, or accurately provide regulatory reports, customer notices or disclosures, or make tax-related withholdings or payments, on behalf of themselves or their customers.
While Grupo Galicia’s subsidiaries have adopted policies and procedures intended to detect and prevent the use of their networks for money laundering activities and by terrorists, terrorist organizations and other types of organizations, those policies and procedures may fail to fully eliminate the risk that Grupo Galicia’s subsidiaries
have been or are currently being used by other parties, without their knowledge, to engage in activities related to money laundering or other illegal activities. Moreover, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time, systems and procedures designed to ensure compliance. For example, Grupo Galicia’s subsidiaries are subject to regulations issued by the Office of Foreign Assets Control (OFAC)(“OFAC”) that prohibit financial institutions from participating in the transfer of property belonging to the governments of certain foreign countries and designated nationals of those countries. OFAC may impose penalties or restrictions on certain activities for inadvertent or unintentional violations even if reasonable processes are in place to prevent the violations. Any violation of these or otherthe applicable laws or regulatory requirements, even if inadvertent or unintentional, or any failure to meet regulatory standards or expectations, including any failure to satisfy the conditions of any consent orders, could result in fees, penalties, restrictions on Grupo Galicia’s subsidiaries. ability to engage in certain business activities, reputational harm, loss of customers or other negative consequences.
A disruption or failure in Grupo Galicia’s information technology system could adversely affect its operations and financial position.
The success of Grupo Galicia’s subsidiaries is dependent upon the efficient and uninterrupted operation of their communications and computer hardware systems, including those systems related to the operation of their ATM networks.networks and digital channels. Grupo Galicia’s communications, systems or transactions could be harmed or disrupted by fire, floods, power failures, defective telecommunications, computer viruses, electronic ordata breach, cyber-attacks, acts of terrorism, physical theft, reputation incidents and similar events or disruptions. Any of the foregoing events may cause disruptions in Grupo Galicia’s systems, delays and the loss of critical data, and could prevent it from operating at optimal levels. In addition, the contingency plans in place may not be sufficient to cover all those events and, therefore, this may mean that the applicable insurance coverage is limited or inadequate, preventing Banco Galicia from receiving full compensation for the losses sustained as a result of such a global disruption. If any of these events occur, it could damage the reputation, entail serious costs and affect Grupo Galicia’s transactions, as well as its results of operations and financial position.
An increase in cybersecurity breaches or fraudulent
As of July 1, 2018, the Peso qualifies as a currency of a hyperinflationary economy, and other illegal activity involving Grupo Galicia oris required to apply inflationary adjustments to its subsidiariesfinancial statements, which adjustments could lead to reputational damage to Grupo Galicia’s (oradversely affect its subsidiaries’) brands and could reduce the use and acceptance of its and its subsidiaries’ products, therefore adversely affecting its business andfinancial statements, results of operations.operations and financial condition.
The businessPursuant to IAS 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of manyentities whose functional currency is that of Grupo Galicia’s subsidiaries depends on the efficient and uninterrupted operation of its data processing systems, its platformsa hyperinflationary economy must be restated in a suitable general price index to control for the exchangeeffects of informationchanges. IAS 29 does not prescribe when hyperinflation arises, but rather provides for several characteristics indicating hyperinflation in an economy. In addition, the IASB does not identify specific hyperinflationary jurisdictions. In June 2018, the International Practices Task Force of the Centre for Quality, which monitors “highly inflationary countries”, categorized Argentina as a country with a projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present. Argentine companies applying IFRS are required to apply IAS 29 to their financial statements for periods ending on and its digital networks. Manyafter July 1, 2018.In addition, certain regulatory authorities, such as the Argentine Securities Commission (Comisión Nacional de Valores) (“CNV”), have required that financial statements submitted to the CNV for the periods ended on and after December 31, 2018 to be restated for inflation in accordance with IAS 29.
For purposes of Grupo Galicia’s subsidiaries have access to a large amountthe determination of confidential information about their respective clients. Therefore, cybersecurity breaches represent a potential riskthe indexation for Grupo Galicia. Cybersecurity breachestax purposes, Law No.27,468, enacted on December 4, 2018, substituted the Wholesale Price Index for CPI and modified the standards triggering tax indexation procedures.For the three fiscal years beginning January 1, 2018, such tax indexation will be applicable if the variation of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020. The tax indexation determined during any such year will be allocated as follows: 1/6 in that resultsame year, and the remaining 5/6 in for example, identity theft, phishing, ransomware, information leaks, APT (Advanced Persistent Threat), DDoS Attacks (Denial of Distributed Service) orequal parts in the theft of personal and confidential information, could negatively affectfollowing five years. From January 1, 2021, the security of information that is stored and transmitted through the information systems and network infrastructure of Grupo Galicia and negatively affect the reputation of Grupo Galicia’s brands, thereby causing existing and potential clients to refrain from conducting business with Grupo Galicia’s subsidiaries. tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.
Grupo Galicia cannot provide any assurance thatpredict the systems are invulnerable to cybersecurity breaches or that its existing security measures will be successful in protecting against any such breach. In addition, any of the aforementioned events could lead to an increase in compliance costs for Grupo Galicia’s subsidiaries. If any of the above described events were to occur, it could lead to reputational damage to Grupo Galicia’s brands, which could reduce the use and acceptance of its products, greater regulation, and increased compliance costs, therefore adversely affect its business and results of operation and the trading price for its ADSs.
Fluctuations in the value of the Peso could adversely affect Argentine economic growth and Argentina’s international reserves and the financial situation of the Grupo Galicia and its subsidiaries.
The devaluation of the Peso could have a negative impact on the ability of certain Argentine businesses to make timely payments on their foreign currency-denominated debt, could cause inflation, could cause a significant reduction in salaries in real terms, could put at risk the financial stability of companies, such as certain subsidiaries of Grupo Galicia, whose success depends on internal market demand and could also adversely affect the ability of the Argentine government to pay its foreign currency-denominated debt. In 2015, the Peso depreciated approximately 25% as compared to the Dollar, which included a 10% depreciation between January 1, 2015 and November 30, 2015 and a 16% devaluation during the last month of the year, the majority of which was concentrated in the period after December 16, 2015 once the government of Macri assumed control of the exchange rate put in place by the prior government. In 2016, the Peso lost approximately 28% of its value as compared to the Dollar and in 2017, the Peso lost approximately 11% of its value as compared to the Dollar. In 2018, an exchange rate crisis caused the Peso to lose approximately 53% of its value as compared to the Dollar.
From time to time, the Central Bank may intervene in the foreign exchange market to influence exchange rates. Purchases of Pesos by the Central Bank could cause a decrease in the international reserves of the Central Bank. A significant decrease in the Central Bank’s international reserves may have an adverse impact on Argentina’s ability to withstand external shocks to the economy, and any adverse effects to the Argentine economy could, in turn, adversely affect the financial position and business of Grupo Galicia and its subsidiaries.
Further, a significant depreciation of the Peso would, among other things, increase the cost of servicing certain of Grupo Galicia’s subsidiaries’ foreign currency-denominated debt. Either a significant depreciation or appreciation could have a material adverse effect on the Argentine economy and Grupo Galicia’s financial condition and results of operations.
Shortages in the availability of energy in Argentina could adversely affect the Argentine economy and hence the operation and business of Grupo Galicia and its subsidiaries.
The various economic crisis in the past in Argentina and the fixing of the tariff rates in the electricity sector have provoked a significant lack of infrastructure and business investment for the supply and transportation of natural gas and electricity. At the same time, the demand for the natural gas and electricity in Argentina has increased considerably due to the improving economic conditions in the country and the low cost of such services. To address such increase in demand, Argentina has needed to import natural gas from other countries. The Central Bank’s reserves have been frequently used by the government to pay for such imports. If the government is unable to pay to import natural gas to cover the energy deficit, the Argentine economy may suffer and Argentine businesses may be adversely affected.
Several measures have been adopted by the government in order to lessen the short termfull impact of the lack of energy for residential and industrial users. If these measures are not sufficient, or if the relevant investments are not timely made, the Argentine economy could be seriously affected, producing a negative impact on local business.
Since 2015, as a first step, tariff increases were implemented and subsidies to industries and to high income consumers were reduced. In February 2016, the government implemented various increases in tariffs and reductions in subsidies for gas and electricity users.
On August 18, 2016, the Supreme Court suspended the gas tariff increases for residential users and ordered public hearings in respectapplication of such increases. The Argentine government, complying with this ruling, conducted public hearingstax indexation procedures and the related adjustments on its financial statements or the mattereffects of such tax indexation procedures on its business, results of operations and financial condition.
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Small spreads in September 2016. During such hearings, the Secretary of Energy ratified the government’s plan to maintain such increasesinterest rates between loans and to further increase the same. In October 2016, resolution No.212 – E/2016 established the new gas tariffs with an average increase of 200% for residential consumers and of 277% for most merchants, small and medium companies.
On September 27, 2016, Federal Judge No.3 of the Province of Cordoba suspended for the whole country the increase of gas tariffs for merchants, small and medium companies and ordered the imposition of the tariff regime in place on March 31, 2016 until December 27, 2016. Such resolution was appealed by the Argentine government. On September 6, 2016, the Supreme Court ruled in favor of increasing the electricity tariffs in the Province of Buenos Aires.
As a consequence of the above, the cost of energy has increased significantly in recent years, which increase may have an adverse effect on the Argentine economy and Grupo Galicia’sdeposits, could harm our financial conditionposition and results of operations.
High levels
We carry out our operations in a country that is subject to frequent regulatory changes, high inflation and frequent currency devaluations. As a result, interest rates fluctuate frequently with direct impacts on the main source of public spending in Argentina could generate long lasting adverse consequencesincome for the Argentine economy.business of our subsidiaries.
During recent years,
These fluctuations may generate losses based on the Argentine governmenttype of financing granted, the value of the interest rate for the financing and the other terms of the loans extended. For example, in such a volatile country, the granting of long-term loans with fixed rates can result in severe monetary losses if the interest rate earned on the loans extended does not exceed the interest that we (or our subsidiaries) pay on deposits we or they hold.
In addition to this, the increasing competition we face from digital banks has substantially increasedforced us to offer lower interest rates than we otherwise would in order to remain competitive in the levelsmarket. If we are not able to maintain profitable spreads between interest that we earn on the loans that we and our subsidiaries grant and the interest that we pay on the deposits that we and our subsidiaries hold, our results of its public spending. In 2016, public sector spending increased by 38.2% as comparedoperations and financial condition may be materially adversely impacted.
Problems in operations due to failures in services contracted from external suppliers.
Due to the prior year,nature of the business and the government announced a primary fiscal deficit equal to 4.2%size of GDP. In 2017, public sector spending increased by 21.8% as compared toour business, many of our computer systems and operations depend on services contracted from external suppliers. This prevents us from controlling, in depth, the prior year,operation and the government announced a primary fiscal deficit equal to 3.8% of GDP. In 2018, public sector spending increased by 22.4% as compared to the prior year, and the government announced a primary fiscal deficit equal to 2.4%, with revenues increasing 30.2% for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
Despite the results of the year ended December 31, 2018, if public spending increases again outpace increases in revenues, the fiscal deficit is likely to increase, causing the Argentine government to seek assistance from the Central Bank and the National Administrator of Pensions.
Any such increase in the deficit could have a negative effect on the government’s ability to access to the long term financial markets, and in turn, could limit the access to such markets for Argentine companies, such as Grupo Galicia and its subsidiaries. The same may have a material and adverse effect on Grupo Galicia’s financial condition and results of operations.
Failure to adequately address actual and perceived risks arising from institutional deterioration and corruption could adversely affect Argentina’s economy and financial position and the ability of Argentine companies to attract foreign investment.
The lack of a solid institutional framework and corruption have been identified as serious problems for Argentina, and may continue to be. In the Transparency International’s Corruption Perceptions Index 2018, which measures corruption in 180 countries, Argentina ranked No.85. In the World Bank’s “Doing Business” report in 2018, Argentina Ranked No.119 out of 190 countries. The failure to address these issues could increase the risk of political instability, distort the decision-making process, adversely affect Argentina’s international reputation and its ability and the ability of its companies to attract foreign investment. Although the Macri administration has announced several measures aimed at strengthening Argentina’s institutions and reducing corruption, the Argentine government’s ability to implement these initiatives is uncertain as it would require the involvement of the judiciary branch, which is independent, as well as legislative support from opposition parties and there can be no assurances that the implementationprovision of such measures will be successful. A deteriorationservices. Performance or operational failures of outsourced services may result in the Argentine economy could have a material and adverse effectoperational losses or system failures, with subsequent negative impacts on Grupo Galicia’sour reputation, financial condition and results of operations.
Item 4. Information on the Company
A. History and Development of the Company
Our legal name is Grupo Financiero Galicia S.A. We are a financial services holding company that was incorporated on September 14, 1999, as a sociedad anónima (which is a stock corporation) under the laws of Argentina. As a holding company we do not have operations of our own and conduct our business through our subsidiaries. Banco Galicia is our main subsidiary and one of Argentina’s largest full-service banks.
Through the operating subsidiaries of Tarjetas Regionales in which Grupo Financiero Galicia has anowns 83% ownership interest, we provide proprietary brand credit cards throughout the “Interior” of the country and consumer finance services throughout the “Interior” of Argentina. Argentines refer to the “Interior”Interior as all of Argentina except for the city of Buenos Aires and the areas surrounding the city of Buenos Aires (“Greater Buenos Aires”), i.e., the provinces, including the Buenos Aires Province but excluding the city of Buenos Aires and its surrounding areas (“Greater Buenos Aires”).surroundings.
Through Sudamericana Holdings and its subsidiaries, we provide insurance products in Argentina. We directly or indirectly own other companies providing financial related products as explained herein.
We are one of Argentina’s largest financial services groups with consolidated assets of Ps.569,692Ps.685,519 million as of December 31, 2018.2019. For more information regarding Prisma Medios de Pago divestiture, the corporate reorganization of the broker services and mutual funds companies, the corporate reorganization of Tarjetas Regionales and the sale of Compañia Financiera Argentina S.A. (“CFA”), please see “History”.
Our goal is to consolidate our position as one of Argentina’s leading comprehensive financial services providers while continuing to strengthen Banco Galicia’s position as one of Argentina’s leading banks. We seek to broaden and complement the operations and businesses of Banco Galicia, through holdings in companies and undertakings whose objectives are related to and/or can produce synergies with financial activities. Our non-banking subsidiaries operate in financial and related activities in which Banco Galicia either cannot participate or in which it can participate only on a limited basis due to restrictive banking regulations.
We are domiciled in Buenos Aires, Argentina. Under our bylaws, our corporate duration is until June 30, 2100. Our duration may be extended by a resolution passed at the extraordinary shareholders’ meeting. Our principal executive offices are located at Teniente General Juan D. Perón 430, Twenty-Fifth floor, (C1038AAJ), Buenos Aires, Argentina. Our telephone number is (54-11) 4343-7528 and our website is www.gfgsa.com.
Our agent for service of process in the United States is CT Corporation System, presently located at 111 8th Avenue, New York, New York 10011.
History
Grupo Financiero Galicia
Grupo Financiero Galicia was formed on September 14, 1999 as a financial services holding company to hold all the shares of the capital stock of Banco Galicia held by members of the Escasany, Ayerza and Braun families. Its initial nominal capital amounted to 24,000 common shares, 12,516 of which were designated as class A ordinary (common) shares (the “class A shares”) and 11,484 of which were designated as class B ordinary (common) shares (the “class B shares”).
Following Grupo Financiero Galicia’s formation, the holding companies that held the shares in Banco Galicia on behalf of the Escasany, Ayerza and Braun families were merged into Grupo Financiero Galicia. Following the merger, Grupo Financiero Galicia held 46.34% of the outstanding shares of Banco Galicia. In addition, and due to the merger, Grupo Financiero Galicia’s capital increased from 24,000 to 543,000,000 common shares, 281,221,650 of which were designated as class A shares and 261,778,350 of which were designated as class B shares. Following this capital increase, all of our class A shares were held by EBA Holding S.A., an Argentine corporation that is 100% owned by our controlling shareholders, and our class B shares were held directly by our controlling shareholders in an amount equal to their ownership interests in the holding companies that were merged into Grupo Financiero Galicia.
On May 16, 2000, our shareholders held an extraordinary shareholders’ meeting during which they unanimously approved a capital increase of up to Ps.628,704,540 and the public offering and listings of our class B shares. All of the new common shares issued as a result of such capital increase were designated as class B shares, with a par value of Ps.1. During this extraordinary shareholders’ meeting, all of our existing shareholders waived their preemptive rights. In addition, the shareholders determined that the exchange ratio for the exchange offer would be one class B share of Banco Galicia for 2.5 of our class B shares and one ADS of Banco Galicia for one of our ADSs. The exchange offer was completed in July 2000 and the resulting capital increase was of Ps.549,407,017. Upon the completion of the exchange offer, our only significant asset was our 93.23% interest in Banco Galicia.
On January 2, 2004, our shareholders held an extraordinary shareholders’ meeting during which they approved a capital increase of up to 149,000,000 preferred shares, each of them mandatorily convertible into one of our class B shares on the first anniversary of the date of issuance. Such shares were to be subscribed for in up to US$100 million of face value of subordinated notes to be issued by Banco Galicia to its creditors in the restructuring of the foreign debt of its head office in Argentina (the “Head Office”) and its Cayman Branch, or in cash. This capital increase was carried out in connection with the restructuring of Banco Galicia’s foreign debt. On May 13, 2004, we issued 149,000,000 preferred non-voting shares, with preference over the ordinary shares in the event of liquidation, each with a face value of Ps.1. The preferred shares were converted into class B shares on May 13, 2005. With this capital increase, our capital increased to Ps.1,241,407,017.
In August 2007, Grupo Financiero Galicia exercised its preemptive rights in Banco Galicia’s issuance of shares and subscribed for 93.6 million shares of Banco Galicia. The consideration paid for such shares consisted of: (i) US$102.2 million face value of notes due 2014 issued by Banco Galicia in May 2004, and (ii) cash. After the capital increase, Grupo Financiero Galicia increased Banco Galicia’s shares from 93.60% to 94.66%.
In September 2013, Grupo Financiero Galicia announced that it had reached an agreement to absorb Lagarcué S.A. and Theseus S.A. (entities that were shareholders of Banco Galicia at the moment of the merger). The consolidated financial statements prepared specifically for this merger were issued as of June 30, 2013 and the effective date of such merger was September 1, 2013.
This merger resulted in an increase of the ownership interest Grupo Financiero Galicia had in its principal subsidiary Banco Galicia in the amount of 25,454,193 class B shares, which also represented all of the total capital stock (4.526585%) Lagarcué S.A. and Theseus S.A. had in Banco Galicia.
Consequently, Grupo Financiero Galicia agreed to increase its capital stock by issuing 58,857,580 new class B shares representing 4.526585% of the outstanding capital stock of Grupo Financiero Galicia to be delivered to the shareholders of Lagarcué S.A. and Theseus S.A.
Additionally, Grupo Financiero Galicia, together with Banco Galicia and the shareholders of Lagarcué S.A. and Theseus S.A., signed a supplemental agreement governing operational issues of and providing for the settlement and mutual withdrawal of any pending claims.
All documentation related to the merger by absorption of Lagarcué S.A. and Theseus S.A. by Grupo Financiero Galicia was approved at the extraordinary shareholders’ meeting of Grupo Financiero Galicia held on November 21, 2013, including the exchange ratio and the above mentioned capital increase of Ps.58,857,580 through the issuance of 58,857,580 class B shares, with a face value of Ps.1, one vote per share, entitling its owners to participate in the profits of the financial year beginning on January 1, 2013.
On December 18, 2013, the definitive merger agreement contemplating the absorption of Lagarcué S.A. and Theseus S.A. was registered in a public deed pursuant to the terms of paragraph 4 of article 83 of the Ley General de Sociedades (Law No. 19,550, as amended, the General Corporations Law or “Corporations Law”), and effective as of September 1, 2013. Therefore, 25,454,193 class B shares of Banco Galicia, representing 4.526585 % of its capital stock previously owned by Lagarcué S.A. and Theseus and S.A. were transferred to Grupo Financiero Galicia. As a result, Grupo Financiero Galicia owns 560,199,603 shares of Banco Galicia, representing 99.621742% of its capital stock and voting rights.
On February 27, 2014, by Resolution No. 17,300, the Board of the Comisión Nacional de Valores (the “National Securities Commission”, or the “CNV”) consented to the absorption of Lagarcué S.A. and Theseus S.A and to the above mentioned increase in capital of Grupo Financiero Galicia.
On February 25, 2014, the Board of Directors of Grupo Financiero Galicia resolved to offer to acquire all of the remaining shares of Banco Galicia owned by third parties, amounting to 2,123,962 shares, at an amount of Ps.23.22 per share, which was approved by the CNV on April 24, 2014.
In compliance with Argentine regulations, Grupo Financiero Galicia made all required communications and paid the amounts corresponding to the remaining shares of Banco Galicia held by third parties. On August 4, 2014, Grupo Financiero Galicia became the owner of 100% of the outstanding capital stock of Banco Galicia when the relevant unilateral declaration to acquire the remaining shares of Banco Galicia held by third parties was recorded as a public deed pursuant to Article 95 of the Law No.26,831No. 26,831 (the “Capital Markets Law”, in Spanish “Ley“Ley de Mercado de Capitales”).
On January 12, 2017, Grupo Financiero Galicia together with its main subsidiary, Banco Galicia, accepteddecided to accept an offer made by Mr. Julio A. Fraomeni and Galeno Capital S.A.U. to purchase 100% of CFA.Banco Galicia’s subsidiary, Compañía Financiera Argentina S.A. On December 4, 2017, pursuant tothrough Resolution No.414,No. 414, the Argentine Central Bank authorized suchthe sale which wasof Compañía Financiera Argentina S.A. During the first quarter of fiscal year 2018, payments were completed, on February 2, 2018, andso Grupo Financiero Galicia received a total amount of Ps.30,771,146 (which, as adjusted for inflation, was equal to Ps.42,794,389Ps.65,831,636 as of December 31, 2018).2019) for its 3% of participation in Compañia Financiera Argentina S.A.
On May 16, 2017, the Board of Directors of Grupo Financiero Galicia accepted an offer to acquire 10,000 book-entry shares with a nominal value of Ps.1 per share, representing 1% of the share capital of Galicia Valores S.A. owned by CFACompañía Financiera Argentina S.A. for Ps.906,524.15 (which, as adjusted for inflation, was equal to Ps.1,511,188Ps.2,324,697 as of December 31, 2018)2019).
During August 2017, Grupo Financiero Galicia accepted a series of irrevocable sales offers for the acquisition of a 6% of the issued and outstanding share capital of itsthe subsidiary Tarjetas Regionales.Regionales S.A. On January 5, 2018, a total sales price of US$49,000,000 was paid by Grupo Financiero Galicia and the transaction was completed on January 8, 2018, with the transfer of 22,633,260 Class A common shares, book-entry, with a par value of Ps.1 per share and five5 votes per share, and 42,033,196 Class B common shares, book-entry, with a par value of Ps.1 per share and one1 vote per share.
On October 12, 2017, the Board of Directors of the Company approved the corporate reorganization of Grupo Financiero Galicia and Banco Galicia. Such reorganization consisted of the divestiture of Banco Galicia’s shares in Tarjetas Regionales (77% of its share capital), and the incorporation of such shares into the assets of Grupo Financiero Galicia effective January 1, 2018. On January 19, 2018, the Argentine Central Bank, through Note No.312/No. 312/04/2018, confirmed that it did not object to suchthe corporate reorganization. Consequently,Consecuently, Grupo Financiero Galicia maintainsholds an 83% ownership interest in Tarjetas Regionales.Regionales S.A.
On August 15, 2017, the shareholders of Grupo Financiero Galicia approved an increase of its share capital by issuing up to a maximum of 150,000,000 of new Class B shares, book-entry, with a right to one vote and a face value of Ps.1 per share.
On September 26, 2017, the global primary follow-on offering period ended and 109,999,996 Classclass B shares were subscribed for a price of US$5 per share. Such shares were issued on September 29, 2017. The Company granted the underwriters the option to purchase additional Classclass B ordinary shares at the offering price, and on October 2, 2017, the underwriters exercised such option and 16,500,004 additional Classclass B shares at US$5 per share were issued on October 4, 2017.
As a result of the foregoing offering, a total of 126,500,000 ordinary Classclass B shares, book-entry, with a right to one vote and a face value of Ps.1 per share were issued. Issued and outstanding capital of Grupo Financiero Galicia was therefore Ps.1,426,764,597, represented by 281,221,650 ordinary Classclass A shares, book-entry, entitled to five votes per share and a face value of Ps.1 per share and 1,145,542,947 ordinary Classclass B shares, book-entry, entitled to one vote and a face value of Ps.1 per share.
On December 27, 2017, Grupo Financiero Galicia made a capital contribution to Banco Galicia of Ps.10,000,000,000, (which, as adjusted for inflation, was equal to Ps.14,764,559,007Ps.22,712,675,768 as of December 31, 2018)2019).
On May 28, 2019, the Board of Directors of Grupo Financiero Galicia approved a capital contribution to Tarjetas Regionales S.A. for Ps.500,000,000 (which, as adjusted for inflation, was equal to Ps.645,455,576 as of December 31, 2019) to fund the creation of a new digital financial company, denominated “Naranja Digital Compañía Financiera S.A.U.” meant to reach the unbanked population of Argentina. Said capital contribution was effective in two payments of Ps.250,000,000 each, the first one made in June 2019 and the second one made in December 2019. The formation of said company was approved on September 16, 2019, by resolution number 205 of the Argentine Central Bank. The commencement of activities of Naranja Digital Compañía Financiera S.A.U. are subject to prior compliance with the provisions required by the Argentine Central Bank within the first year anniversary of the aforementioned resolution number 205
On July 2, 2019, the Board of Directors of Grupo Financiero Galicia accepted an offer made by Galicia Valores, to acquire 5% of the stock of Galicia Administradora de Fondos S.A. for US$920,000. Such acquisition made Grupo Financiero Galicia the sole shareholder of Galicia Administradora de Fondos S.A. Likewise, on the same date, the Board of Directors of Grupo Financiero Galicia approved the creation of a new company denominated IGAM LLC, to be registered in the state of Delaware, United States of America, to provide brokerage, investing and other financial services in Argentina and in other countries. The registration of IGAM LLC took place on July 3, 2019.
On August 15, 2019, the Board of Directors of Grupo Financiero Galicia accepted a purchase offer made by Banco Galicia to sell 10,000 shares, representing 1% of the capital stock of Galicia Valores, for Ps.695,308.54 (which, as adjusted for inflation, was equal to Ps.822,516.02 as of December 31, 2019). With this share purchase, Galicia Valores is 100% owned by our subsidiary Banco Galicia.
On September 20, 2019, the Board of Directors of Grupo Financiero Galicia approved a capital contribution to IGAM LLC for Ps.71,000,000, (which, as adjusted for inflation, was equal to Ps.79,320,966 as of December 31, 2019), to be applied to the purchase of the total stake in Galicia Valores owned by Banco Galicia. Said operation was closed at a total price of Ps.69,530,854 (which, as adjusted for inflation, was equal to Ps.77,679,641 as of December 31, 2019).
Banco Galicia
Banco Galicia is a banking corporation organized as a stock corporation under Argentine law and supervised and licensed to operate as a commercial bank by the Superintendencia de Entidades Financieras y Cambiarias (Superintendency of Financial Institutions and Exchange Bureaus or, the “Superintendency”).
Banco Galicia was founded in September 1905 by a group of businessmen in Argentina and began operations in November 1905. Two years later, in 1907, Banco Galicia’s stock was listed on the Buenos Aires Stock Exchange (the “BASE”). Banco Galicia’s business and branch network increased significantly by the late 1950s and continued expanding in the following decades, after regulatory changes allowed Banco Galicia to exercise its potential and gain a reputation for innovation, thereby achieving a leading role within the domestic banking industry.
In the late 1950s, Banco Galicia launched the equity mutual fund FIMA Acciones and founded the predecessor of the asset manager Galicia Administradora de Fondos. Beginning in the late 1960s, Banco Galicia began to establish an international network mainly comprised of branches in New York and in the Cayman Islands, a bank in Uruguay and several representative offices.
In order to develop automated banking in Argentina and avoid bank disintermediation (i.e., when consumers access information or goods directly rather than through intermediaries) in the provision of electronic information and fund transfer services, in 1985, Banco Galicia established, together with four other private- sector banks operating in Argentina, Banelco S.A. to operate a nationwide automated teller system, which became the largest in the country. During the same year, Banco Galicia also acquired an interest in VISA Argentina S.A., and is currently one of the largest issuers of such cards in Argentina.
During the 1990s, Banco Galicia implemented a growth and modernization strategy directed at achieving economies of scale and increasing productivity and, therefore, heavily invested in developing new businesses, acquiring new customers, widening its product offering, developing its IT and human resources capabilities, and expanding its distribution capacity. This was comprised of traditional channels (branches) and, especially, alternative channels, including new types of branches (e.g., in-store), ATMs, banking centers, phone banking and internetonline banking.
As part of its growth strategy, Banco Galicia began expanding into rural areas in the Interior, where there was believed to be a high potential for growth. Historically, the Interior was underserved relative to Buenos Aires and its surroundings with respect to access to financial services, and its population tends to use fewer banking services. Between 1995 and 1999, Banco Galicia acquired equity interests in entities and formed several non-banking companies providing financial services to individuals in the Interior through the issuance of proprietary brand credit cards. See “—Regional Credit Card Companies”“—Tarjetas Regionales” below. In addition, in 1997, Banco Galicia acquired a regional bank that was merged into it, with branches located mainly in Santa Fe and Córdoba, two of the wealthiest and most populous provinces.
In order to fund its strategy, during the 1990s, Banco Galicia tapped the international capital markets for both equity and debt. In June 1993, Banco Galicia carried out its initial international public offering in the United States and Europe and, as a result, listed its American Depositary Receipts (“ADRs”) on the Nasdaq Stock Market until 2000, when Banco Galicia’s shares were exchanged for our shares. In 1991, it was the first Argentine bank to issue debt in the European capital markets and, in 1994, it was the first Latin American issuer of a convertible bond. In 1996, Banco Galicia raised equity again through a local and international public offering.
In 1996, Banco Galicia entered the bank insurance business through an agreement with ITT Hartford Life Insurance Co. for the joint development of initiatives in the life insurance business. In the same year, Banco Galicia initiated its internet presence, which evolved into a full e-banking service for both companies and individuals.
At the end of 2000, Banco Galicia was the largest private-sector bank in the Argentine market with a 9.8% deposit market share.
In 2001 and 2002, Argentina experienced a severe political and financial crisis, which had a material adverse effect on the financial system and on financial businesses as a whole, including Banco Galicia, but especially on financial intermediation activity. However, during the crisis, the provision of transactional banking services was maintained. With the normalization of the Argentine economy and the subsequent period of growth, financial activities began to increase, translating into significant growth for the financial system as a whole, including Banco Galicia. The provision of services continued to develop, surpassing their development pre-crisis, and financial intermediation activity resumed progressively.
Beginning in May 2002, Banco Galicia began to implement a series of initiatives to deal with the liquidity shortage caused by the systemic deposit run, the unavailability of funding and other adverse effects of the 2001-2002 financial crisis. Banco Galicia significantly streamlined its operations and reduced its administrative expenses and, immediately after launching such initiatives, restored its liquidity. Also, in late 2002 and early 2003, Banco Galicia closed all of its operating units abroad or began to wind them down. In addition, Banco Galicia: (i) restructured most of its commercial loan portfolio, a process that was substantially completed in 2005, (ii) restructured its foreign debt, a process that began in 2002 and that was completed in May 2004, and resulted in an increase in its capitalization, and (iii) in February 2004, finalized the restructuring of its debt with the Argentine Central Bank incurred as a consequence of the 2001-2002 financial crisis.
Together with the launching of the above-mentioned initiatives, Banco Galicia began to normalize its activities, progressively restoring its customer relations and growing its business with the private sector. In 2007, Banco Galicia finalized the full repayment of its debt with the Argentine Central Bank incurred as a consequence of the 2001-2002 financial crisis. In addition, in August 2007, Banco Galicia repaid in full the notes that it had issued to restructure the debt of its New York Branch and undertook a share offering to increase its capitalization, in order to be able to support the increase in regulatory capital requirements on a bank’s exposure to the public sector and the growth of its business with the private sector.
On February 25, 2014, Grupo Financiero Galicia, which controlled 99.62% of the shares of Banco Galicia, resolved to issue an offer to acquire the 2,123,962 shares of Banco Galicia owned by third parties. On April 24, 2014, said transaction was approved by the CNV and on July 14, 2014, it was incorporated by the Argentine Superintendency of Corporations. Currently, 100% of the outstanding capital stock of Banco Galicia is owned by Grupo Financiero Galicia. See “—Grupo Financiero Galicia” above.
In addition, Banco Galicia requested to delist its shares from the BYMA to become a privately held company. Banco Galicia’s quotation was suspended on April 30, 2014. On August 21, 2014, the CNV approved Banco Galicia’s request to delist its shares from the BASE.
On January 12, 2017, Grupo Financiero Galicia and Banco Galicia accepted an offer made by Mr. Julio A. Fraomeni and Galeno Capital S.A.U. to purchase 100% of CFA, a subsidiary of Banco Galicia. On December 4, 2017, pursuant to Resolution No.414, the Argentine Central Bank authorized such transaction, which was completed on February 2, 2018.
On March 31, 2017, Banco Galicia’s Board of Directors approved the sale of its stake (58.8% of the issued and oustanding shares) in its subsidiary Tarjetas del Mar to Sociedad Anónima Importadora y Exportadora de la Patagonia (which already owned 40% of the total shares of Tarjetas del Mar). CFA also sold its stake (1.2% of the issued and outstanding shares) in Tarjetas del Mar to Federico Braun. Banco Galicia received approximately US$5,000,000 in respect of such sale.
On December 27, 2017, Grupo Financiero Galicia, in its capacity as sole shareholder and holder of 100% of the capital of Banco Galicia, integrated a capital contribution of Ps.10,000 million (which, as adjusted for inflation, was equal to Ps.14,765 million as of December 31, 2018). The Argentine Central Bank, through its Resolution No.35 dated January 11, 2018, approved the capital contribution and its consideration as computable capital.
Regional Credit Card Companies
On January 21, 2019 Banco Galicia, sold to AI Zenith (Netherlands) B.V. 3,182,444 book-entry common shares, with face value of Ps.1 each and one vote per share, representing 7.7007% of Prisma Medios de Pago S.A. (“Prisma”) capital stock. Banco Galicia continues to hold 3,057,642 shares in Prisma, which represents 7.3988% of its capital stock.
In August 2019, the Bank accepted an offer to acquire 100% of the shareholding in Galicia Valores made by IGAM. The price of the operation amounted to Ps.70 million. See “—Grupo Financiero Galicia”.
Tarjetas Regionales
In the mid-1990s, Banco Galicia made the strategic decision to target the “non-account holding” individuals market, which, in Argentina, typically includes the low and medium-low income segments of the population who live in the Interior of the country, in addition to certain parts of Greater Buenos Aires. To implement this strategic decision, in 1995 Banco Galicia began investing in non-bank companies (the “Regional Credit Card Companies”) operating in certain regions of the Interior, providingInterior. These companies provided financial services to individuals through the issuance of credit cards with proprietary brands and extendingextended credit to its customers through such cards.
In 1995, Banco Galicia made the first investment in this business by acquiring a minority stake in Tarjeta Naranja S.A. (“Tarjeta Naranja”) and in 1997 increased its ownership to 80%. This company had begun operations in 1985 in the city of Córdoba, where it marketed “Tarjeta Naranja”, its proprietary brand credit card, and had enjoyed local growth.
In 1996, Banco Galicia formed Tarjetas Cuyanas S.A. (“Tarjetas Cuyanas”), to operate in the Cuyo Region (the provinces of Mendoza, San Juan and San Luis) in partnership with local businessmen. This company launched the “Nevada Card” in May 1996 in the city of Mendoza. Also, in 1996, Banco Galicia formed a new company, Tarjetas del Mar, to operate in the city of Mar del Plata and its area of influence. Tarjetas del Mar began marketing the “Mira” card“Mira Card” in March 1997.
In early 1997, Banco Galicia purchased an interest in Comfiar S.A., a consumer finance company operating in the provinces of Santa Fe and Entre Ríos, which was merged into Tarjeta Naranja in January 2004.
In 1999, Banco Galicia reorganized its participation in this business throughby forming Tarjetas Regionales aS.A (“Tarjetas Regionales”). Tarjetas Regionales became the holding company, wholly owned by Banco Galicia and Galicia Cayman, which owns the shares of Tarjeta Naranja, Comfiar S.A., Tarjetas Cuyanas, and Tarjetas del Mar. In addition, between 1999 and 2000, Tarjetas Regionales acquired Tarjetas del Sur S.A., a credit card company operating in southern Argentina. In March 2001, Tarjetas del Sur S.A. merged into Tarjeta Naranja.
During 2012, the ownership interests in Tarjetas Regionales and its operating subsidiaries were modified due to the following events:
- Tarjeta Naranja’s board of directors approved the merger of Tarjeta Mira S.A. (merged company) into Tarjeta Naranja (merging company).
- Tarjetas Regionales carried out a capital increase that was mainly paid by the contribution of the minority shareholders’ holdings in its subsidiaries Tarjeta Naranja and Tarjetas Cuyanas. Therefore, Banco Galicia’s direct and indirect interest decreased to 77% of the capital stock and the remaining 23% is held by the shareholders who, by means of the above-mentioned contribution, became Tarjetas Regionales’ minority shareholders.
On March 31, 2017, Banco Galicia’s Board of Directors approved the sale of its stake (58.8% of the issued and oustanding shares) in its subsidiary Tarjetas del Mar to Sociedad Anónima Importadora y Exportadora de la Patagonia (which already owned 40% of the total shares of Tarjetas del Mar). CFA also sold its stake (1.2% of the issued and outstanding shares) in Tarjetas del Mar to Federico Braun. Banco Galicia received approximately US$5,000,000 in respect of such sale.
As of December 31, 2016, Banco Galicia held a 77% ownership interest in Tarjetas Regionales. Tarjetas Regionales directly and indirectly held 100% of Tarjeta Naranja and 100% of Tarjetas Cuyanas.
These companies have experienced a significant expansion
On March 31, 2017, Banco Galicia’s Board of their customer bases, in absolute terms and with respect toDirectors approved the rangesale of customers served, number of cards issued, distribution networks and size of operations, as well as a technological upgrade and general modernization. By mid -1995, Tarjeta Naranja had approximately 200,000 cards outstanding. As of December 31, 2018, the Regional Credit Card Companies, on a consolidated basis, had approximately 9 million issued cards and were the largest proprietary brand credit card operation in Argentina.
In terms of funding, the Regional Credit Card Companies have historically used one or moreits stake (58.8% of the following third-party sources of financing: merchants, bond issuances, bank loansissued and other credit lines, financial leases and securitizations using financial trust vehicles. This diversification has allowed the Regional Credit Card Companiesoutstanding shares) in its subsidiary Tarjetas del Mar to maintain and expand their business without depending excessively on one single source or provider.
The business operationsSociedad Anónima Importadora y Exportadora de la Patagonia (which already owned 40% of the Regional Credit Card Companies are exposedtotal shares of Tarjetas del Mar). CFA also sold its stake (1.2% of the issued and outstanding shares) in Tarjetas del Mar to foreign exchange rate fluctuations and interest rate fluctuations; however, they mitigate the foreign exchange rate riskFederico Braun. Banco Galicia received approximately US$5,000,000 in respect of their business and operation through hedging transactions and try to offset their interest rate exposure with assets that bear interest at similar floating rates. In addition, the Regional Credit Card Companies have an overall liquidity policy requiring them to maintain sufficient liquidity to cover at least three months of future operations and to formulate a cash flow projection for each upcoming year. These internal policies and practices ensure adequate working capital through which the Regional Credit Card Companies protect their operations against short-term cash shortages, allowing them to focus on expanding their business and continuously better serving their clients.such sale.
On August 10, 2017, the Board of Directors of each of Tarjeta Naranja and Tarjetas Cuyanas approved the merger of such subsidiaries, by which Tarjetas Cuyanas would merge into Tarjeta Naranja. On September 5, 2017,
Tarjetas Naranja and Tarjetas Cuyanas executed a supplemental merger agreement pursuant to which Tarjeta Naranja acquired the assets and liabilities of Tarjetas Cuyanas effective as of October 1, 2017. Such merger was approved by the shareholders of each subsidiary at Extraordinary General Shareholders’ Meetings in October 2017.
Additionally, in October 2017, Grupo Financiero Galicia publicly announced its plan to undertake a corporate reorganization between Grupo Financiero Galicia and Banco Galicia as discussed above in “History and Development of the Company”.
Tarjeta Naranja has experienced a significant expansion of its customer base, in absolute terms and with respect to the range of customers served, number of cards issued, distribution networks and size of operations, as well as a technological upgrade and general modernization. As of December 31, 2019, Tarjeta Naranja, had approximately 8.5 million issued cards and was the largest proprietary brand credit card operation in Argentina.
In terms of funding, Tarjeta Naranja, has historically used one or more of the following third-party sources of financing: merchants, bond issuances, bank loans and other credit lines, financial leases and securitizations using financial trust vehicles. This diversification has allowed Tarjeta Naranja to maintain and expand their business without depending excessively on one single source or provider.
The business operation of Tarjeta Naranja is exposed to foreign exchange rate fluctuations and interest rate fluctuations; however, Tarjeta Naranja mitigates the foreign exchange rate risk in respect of its business and operations through hedging transactions and tries to offset its interest rate exposure with assets that bear interest at similar floating rates. In addition, Tarjeta Naranja has an overall liquidity policy requiring it to maintain sufficient liquidity to cover at least three months of future operations and to formulate a cash flow projection for each upcoming year. These internal policies and practices ensure adequate working capital through which Tarjeta Naranja protects its operations against short-term cash shortages, allowing Tarjeta Naranja to focus on expanding its business and continuously better serving their clients.
Finally, in February 2019 and December 2019, Cobranzas Regionales S.A. received capital contributions from its shareholders, Tarjeta Naranja and Tarjetas Regionales, with the main purpose of maximize the growth of the "NPOS"(a new service of Tarjeta Naranja mainly used by merchants to accept payments made from clients with any debit or credit card through a wireless device) business and the subsequent launch of the virtual wallet "NaranjaX". As a result of such capital contributions, Cobranzas Regionales S.A. capital stock increased from Ps.1 million to Ps.391 million, represented by 391,000,000 shares of face value of Ps.1 each.
Sudamericana Holding
In 1996, Banco Galicia entered the bank insurance business, through the establishment of a joint venture with Hartford Life International to sell life insurance and annuities, in which it had a 12.5% interest. In December 2000, Banco Galicia sold its interest in this company and purchased 12.5% of Sudamericana, a subsidiary of Hartford Life International. As a result of various acquisitions, Grupo Financiero Galicia owns 87.5% of Sudamericana (with the remaining 12.5% being held by Banco Galicia) which offers life, retirement, property and casualty insurance products in Argentina through its subsidiaries Galicia Seguros S.A. (“Galicia Seguros”), which provides property, casualty and life insurance, Galicia Retiro Compañía de Seguros S.A., which provides retirement insurance and Galicia Broker Asesores de Seguros S.A., an insurance broker.
In addition, during fiscal year 2012 Galicia Seguros, together with three other insurance companies, created Nova Re Compañía Argentina de Reaseguros S.A., the goal of which is to increase the scope of offerings of reinsurance products in Argentina. In September 2017, Galicia Seguros sold its ownership interest in such entity.
Galicia Administradora de Fondos
Incorporated in 1958, Galicia Administradora de Fondos manages the FIMA family mutual funds that are distributed by Banco Galicia through its multiple channels (network of branches and home banking and investment centers, among others). Galicia Administradora de Fondos’ team is comprised of asset management professionals whose goal is to manage the FIMA family funds in order to meet the demand of individuals, companies and institutions. The assets of each fund are distributed across a variety of assets, such as bonds, negotiable obligations, trusts, shares and deposits, among others, in line with the fund’s investment objective.
On April 15, 2014, Banco Galicia sold its 95% interest in Galicia Administradora de Fondos to Grupo Financiero Galicia.
On July 2, 2019, Banco Galicia sold its 5% interest in Galicia Administración de Fondos to Grupo Financiero Galicia.
Net Investment (Liquidated)
Net Investment was established in February 2000 as a holding company (87.5% owned by Grupo Financiero Galicia and 12.5% owned by Banco Galicia).
On May 16, 2017, the General Ordinary Shareholders’ Meeting of Net Investment unanimously approved the early dissolution and subsequent liquidation of Net Investment.Investment. At such meeting, the shareholders appointed a liquidating committee that took all required actions leading to such entity’s actual liquidation, with the financial statements as of December 31, 2017 corresponding to its final liquidation. The final distribution of capital was made on January 9, 2018.
Galicia Warrants
Incorporated in 1993, Galicia Warrants provides financing services, secured by property in its custody, to the agricultural, industrial and agri-industrial sectors, as well as exporters and retailers. Its main objective is to provide access to credit to such sectors and customers. Its shareholders are Grupo Financiero Galicia, which holds 87.5% of the outstanding equity interests of Galicia Warrants, and Banco Galicia, which holds the remaining 12.5% outstanding equity interests.
While the corporate headquarters of Galicia Warrants is located in Buenos Aires, its office in San Miguel de Tucumán carries out transactions in the warrants market, as well as other financing services related to its main sectors and customers it services as described above, throughout Argentina.
IGAM / Galicia Valores
Incorporated in 2019, IGAM is the holding company of Galicia Valores and Nargelon S.A. IGAM is registered in Delaware, USA.
Galicia Valores operates in the investment management industry. Its purpose is to provide broker and financial advisory services while working to build trustworthy and long-term relationships with its clients and prospects. Galicia Valores scope of business is mostly local.
As of 2019, Galicia Valores became a Mercado Abierto Electrónico (MAE) Agent. MAE is one of Argentina’s electronic markets and its main trading parties are institutional investors such as banks, insurance companies, investment brokers and mutual funds. As a MAE Agent, Galicia Valores can trade bonds, currency, futures and other derivatives within MAE. MAE’s.
Capital Investments and Divestitures
During 2018,2019, our capital expenditures amounted to Ps.3,688Ps.7,897 million, allocated as follows:
Ps.2,337
- Ps.3,546 million in fixed assets (real estate, machinery and equipment, vehicles, furniture and fittings); and
Ps.1,351
- Ps.4,351 million in
organizationallicenses anddevelopment expenses.other intangible assets.
During 2017,2018, our capital expenditures amounted to Ps.3,087Ps.5,673 million, allocated as follows:
Ps.2,722
- Ps.3,595 million in fixed assets (real estate, machinery and equipment, vehicles, furniture and fittings); and
Ps.365
During 2017, our capital expenditures amounted to Ps.5,015 million, allocated as follows:
- Ps.4,187 million in fixed assets (real estate, machinery and equipment, vehicles, furniture and fittings); and
- Ps.828 million in licenses and other intangible assets.
These capital expenditures were primarily made in Argentina.
For a description of our divestitures in 2019, 2018 and 2017, related to Tarjetas del Mar, Tarjetas Regionales and the sale of CFA, please see “─History” ─ “Grupo Financiero Galicia”, “Banco Galicia” and “Tarjetas Regionales”.
Investment Planning
We have budgeted capital expenditures for the fiscal year ending December 31, 2019,2020, for the following purposes and amounts:
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These capital expenditures will primarily be made in Argentina. Management considers that internal funds will be sufficient to finance capital expenditures for the year ending December 31, 2019.2020.
B. Business Overview
Banking
Banco Galicia, our largest subsidiary, operates in Argentina and substantially all of its customers, operations and assets are located in Argentina. Banco Galicia is a bank that provides, directly or through itsGrupo Financiero Galicia subsidiaries, a wide variety of financial products and services to large corporations, SMEs, and individuals.
Banco Galicia is one of Argentina’s largest full-service banks and is a leading provider of financial services in Argentina. According to information published by the Argentine Central Bank, as of December 31, 2018,2019, Banco Galicia ranked first in terms of assets and loan portfolio and second in terms of assets and deposits within private-sector banks in Argentina. As of the same date, Banco Galicia also ranked first among private-sector domestic banks in terms of assets, loans and deposits. Its market share of private sector deposits and of loans to the private sector was 11.08%9.92% and 10.51%11.57%, respectively, as of December 31, 2018.2019. As of December 31, 2018,2019, Banco Galicia had total assets of Ps.511,338Ps.616,356 million, total loans and other financing of Ps.243,232Ps.309,329 million, total deposits of Ps.361,446Ps.397,840 million, and its shareholders’ equity amounted to Ps.43,969Ps.96,297 million.
Banco Galicia provides a full range of financial services through one of the most extensive and diversified distribution platforms amongst private-sector financial institutions in Argentina. This distribution platform, as of December 31, 2018,2019, was comprised of 325326 full service banking branches, located throughout the country, 2,0292,054 ATMs and self-service terminals owned by Banco Galicia, phone banking and e-banking facilities. Banco Galicia’s customer base, on an unconsolidated basis, was comprised of approximately 3.02.7 million customers, who were comprised of mostly individuals but who also included 105,960104,010 companies. Banco Galicia has a strong competitive position in retail banking, both with respect to individuals and SMEs. Specifically, based on internal studies undertaken by Banco Galicia, it is estimated that Banco Galicia is one of the primary providers of financial services to individuals, one of the largest providers of credit cards, one of the primary private-sector institutions serving SMEs, and has traditionally maintained a leading position in the agriculture and livestock sectors. Banco Galicia’s primary clients are classified into three categories, Wholesale Banking, Retail Banking, and Financial Banking.
Wholesale Banking
Banco Galicia’s Wholesale Banking division is organized into the following three segments:departments based on their client’ segment: (i) Large-Corporations Banking,Corporate, Investment Banking and Capital Markets; (ii) Middle-Market Banking and (iii) Agricultural Sector.
Large-Corporations Banking,Corporate, Investment Banking and Capital Markets
Large-Corporations Banking
This department provides services and financial assistance to companies withclients whose annual revenues in excess ofinvoices start at Ps.3,000 million or which due to complexity of their businesses and / or their profile as a multinational corporation, or to the complexity of their businesses, needrequire special treatment in terms of financial advice and financial structuring.
As The active portfolio of December 2018, this segment serviced more than 950 customers from more than 300 economic groups. Asshowed an annual growth of December 2018, assets had increased 83%, while20% and 73% in deposits had increased 56%, as compared to December 2017. As2018, and as of December 2018, financial margin2019, this segment serviced over 950 companies from 300 different economic groups.
Corporate, Investment Banking and income from services increased by more than 45% and net income doubled as compared to December 2017. This growthCapital Markets’ service model is based on developing long-term, strategic and commercial relationships with customers. Considering the sustained supportneeds of each business, the economic activity involved and positioningthe markets where its customers operate, the Bank has designed suitable solutions in terms of this segment with customersrequirements and response times, leveraged in digital transaction banking.
The Corporate, Investment Banking and Capital Markets division focuses on providing advice to wholesale banking clients on the energy, oilissuance of new public and gas, infrastructure, automotive, agro-industrial, and food and beverage sectors.
private debt as well as refinancing their existing debt. In 2018,2019, Banco Galicia consolidated its positionleadership as one of the main banks operating in the local capital marketsmarket and investment banking sector, through thein structuring of financing products tailored to the needs of itsfinancings for corporate, clients, SMEsSME and agriculturalagribusiness companies. In 2018, Banco Galicia syndicatedThe Bank was involved in more than 6950 transactions, 23including 16 syndicated and structured loans, 6 restructurings and 4628 public issuances in the capital market, offering a wide variety of products which included, among others, debt and equity instruments, including notes,securities, short-term securities, billssovereign and sub sovereign notes and financial trusts.
The most important Peso-denominated
Among the transactions denominated in 2018 wereArgentine pesos, noteworthy issuances ofincluded (i) government securities issued by the City of Buenos Aires and of the provinceProvince of Buenos Aires, for Ps.7,044 million, (ii) securities by automotive companies, such as Fiat, Toyota and Mercedes Benz, (iii) securitiesissued by affiliates, of Grupo Financiero Galicia, such as Tarjeta Naranja S.A., for Ps.1,584 million, and (iii) securities issued by banks, financial and automotive entities for more than Ps.6,405 million in the aggregate.
Among the transactions denominated in US dollars, we can highlight (i) Banco Galicia's own issuance of bonds for US$82.7 million, (ii) securities issued by local financial institutions for US$488 million, and (ii) the participation of Banco Galicia and (iv) securities by financial companies.
The most important Dollar-denominated transactions included acting as the local placement agent for thePampa Energía’s international bond issuance for US$300 million.
The Bank also participated in domestic and international syndicated transactions in 2018, primarily in the oil and gas sector, in an aggregate amount ofloans amounting to more than Ps.4,460Ps.850 million and US$400560 million, governed by both local and international law, covering different sectors but mainly focused in the energy, oil & gas and agriculture areas. In terms of liability management, this department managed to restructure transactions for over Ps.2,000 million and US$6 million.
The
In line with Banco Galicia's initiative to finance sustainable investment projects, the Bank was also involved ingranted financing for approximately US$50 million, among which it would highlight the procurement of private operators for toll roads in Argentinabilateral loan granted to Grupo Insud to generate energy from forest biomass, awarded under the Public-Private Partnership Program, acting as guarantor underwriter for the financing of such projects.RenovAR 2.0 Program.
Middle-Market Banking
In 2018, the Middle-Market Banking segment was comprised of 4,500 customers from all over Argentina, with annual revenues ranging from Ps.300 million to Ps.2,000 million.
This segment includesservices all business sectors and companies, except for primarythose that are serviced by the agricultural production. These customers are managed by highly specialized general managers and finance managers who provide tailored customer service and customized financing options for such customers. The managers serving these customers are located in twenty of the Bank’s corporate banking centers throughout Argentina and rely on the use of technology and digital channels, which allows for regular communication and streamlined services.
The balance of the Bank’s lending portfolios increased by 33% for the year ended December 31, 2018 assector described below, whose annual revenues range from Ps.400 million to Ps.3,000 million. As compared to the year ended December 31, 2017. As of December 31, 2018, the volume of active portfolio for this segment in 2019 stagnated, but still managed to achieve with a 10% growth in the average treasury balance was equal to Ps.35,000 million, an increase of more than 22% compared to the year ended December 31, 2017. Net profits for the year ended December 31, 2018 were equal to Ps.2,000 million, an increase of 298% as compared to the year ended December 31, 2017.cash balance.
Agricultural Sector
The Agricultural Sector is the Bank’s only segment defined by its customers’ industry. In recent years, agriculture has changed significantly, primarily as a resultindustry, regardless of new technologies, bioeconomicsits profile and integration and changes in product distribution, marketing and domestic and international consumption.size. Banco Galicia tailors its product and service offerings to serve its customers in this segment. Banco Galicia has focused on developingsegment, understanding that the development of digital solutions tothat more closely connect and communicate with customers in this segment.segment are key to the growth of the business.
In 2018, the Bank launched a new digital platform to help farmers finance the purchase of agricultural machinery and commercial vehicles through leasing and mortgage agreements. Tarjeta2019, Galicia Rural a credit card designed for the purchase and financing of agricultural supplies, cattle, breeding cattle, machinery and services for the rural sector, continues to hold a leading position in this industrial sector in 2018 with 56%Card remained one of the market share among private banks.
As partmost valued products for covering the financial needs of this segment, the Bank also makes loans to finance working capital, purchases of equipment and capital expenditures (including the financing of clean energy projects), with 92% year-on-year growth. The Bank has also consolidated its position as the private bank with the largest loan portfolio secured by livestock as collateral.
In 2018, the Bank launched the “Galicia Rural Conecta” customer service model. This new channel incorporates more remote features and reaches more customers in this segment, with such card being the goal ofleading credit card offered by private banks to clients in this sector in Argentina, with a 63% market share. Our inter-annual growth in loan volume was approximately 70%, making Banco Galicia the leading bank for providing customers with tailored services and digital banking options without sacrificing tailored services and customer knowledge.financing in this sector.
Retail Banking
In 2018,2019, Retail Banking continued to focus on implementing its commercial strategy, focusing on offering products tailored to the unique needs of each of the following segments: Business and SMEs,Small and Medium Enterprises (“SMEs”), Galicia ÉMINENT, Private Banking and Individuals Segment. The following are the major challenges that the Bank believes this division will face in implementing this strategy for the period from 2017-2020:
- To build, along with all the Bank’s sectors, a customer-oriented culture.
Regarding transactions, Banco Galicia offers its customers checking and savings accounts, credit and debit cards, and payroll direct deposit, among other services. Banco Galicia’s customers have access to its services through its branch network as well as through its electronic distribution channels. The Bank’s Retail Banking Division offers various types of loans (i.e., personal loans and mortgages) and time deposits (in Pesos or foreign currencies). See “—Sales and Marketing.”
Business, professionals and SMEs
The Business, professionals and SMEs segment is focused on providing financing and other financial products and services to businesses not serviced by the wholesale banking division and small- to medium-sized companies. Through the products offered by this segment, Banco Galicia aimed to encourage the growth of the 255,900 businesses, professionals and companies it serviced in 2019 by offering differentiated products and services designed to assist the day-to-day management of these businesses and companies. The Bank provides such clients with a variety ofknowledge, services, and product offerings, including financial products, payroll services, discount checks and foreign trade transaction support.
This segment encourages the growth of retail stores, professionals and companies by offering flexible products and services according to a customer’s specific activity and stage of development and provides such
customers with the knowledge and tools to streamlinethat expedite their operations and promote networkingthe exchange of experiences among businesses served by this segment.
This year, the Bank discontinued the delivery of physical statements to companies, generating savings of 1.4 million sheets of paper, and enabled the use of electronic checks, where its customers 48% of such businesses.clients being SMEs issued 4,800 e-checks. The Bank became the main platform to undertake transactions usingelectronic checks in the country, with a market share of 75% of electronic checks issued.
Additionally, during 2019, Banco Galicia launched the first Minimum Viable Product (“MVP”) for this segment, to facilitate, and expedite customers’ registration as clients of the Bank. The registration process for clients of this segment was drastically simplified, going from 59-page long bank forms to none, from 14 signatures to a token, and by reducing the customer’s time to obtain its client number from 7 days to 10 minutes.
Likewise, the Bank eliminatedcharges for overdraft, streamline and clarified charges for SMEs, and added an automatic rating for SMEs based on their prior transaction behavior (with no need to submit additional documentation).
In terms of loans, together with Garantizar, a Reciprocal Guarantee Company (Sociedad de Garantía Recíproca or “SGR”), the Bank implemented the credit engine named “Garantizar para Galicia”. Thus, it has simplified application submittals by handling them at only one place and 100% immediately, and started to pre-qualify prospects, which enables it to improve its credit offer to potential customers.
Galicia ÉMINENT
Galicia ÉMINENTÉminent is a segmentthe premium service of the BankBanco Galicia that provides services targeted towards its high net worth customers. Its mission is that its clients always receive differential and exclusive attention, through 3 pillars of service: personalized relationship, exclusive benefits and experiences, and agile and simple processes.
In 2018, Galicia ÉMINENT grew 28% as a result
With the objective of an increase in new customers. The number ofestablishing long-term trust relationships with customers, with high-yield investments continues to increase, and the Bank continues to pursuehas a strategy aimed at positioningface-to-face, customized service system carried out by Éminent officers, and digitally with “Éminent Conecta Advisors” that customers may consult via WhatsApp, email or video conference. This differentiating service enabled the Bank as an investment bank. With respect to maintain its customer service model, it has continued leadingleadership in the Net Promoter Score (“NPS”) at a 30% and to continue to grow in terms of number of new customers by 29%, with outstanding performance in the customer service of Galicia Conecta executives with 40,000 users and other channels such as online banking.4%. NPS is a private, online survey conducted by the Bank that gauges overall customer satisfaction and loyalty based on customers’ willingness to recommend a brand to others.
Additionally, the services provided by Galicia Éminent aim to continue positioning the Bank as a leading investment bank and to improve key processes, such as the implementation of FCR to address certain claims.
Private Banking
Private Banking offers distinctive and professional financial services to high net worth individuals, through the management of their investments and the provision of financial advisory services by trained officers. Private Banking offers its customers a wide range of domestic financial investment alternatives, such as deposits, FIMA mutual funds, government and corporate securities, shares and trusts where the Bank acts as a dealer.
Individuals Segment
Banco Galicia’s Individuals Segment focuses on lower class, lower-middle class and upper-middle class customers. As of December 31, 2018, approximatelyGalicia serves more than 2,700,000 customers, 77% of Banco Galicia’s customers belongedwhich are individuals –ranging from low income to this segment. For this segment,high income– who make personal use of the Bank focuses on communication and customer service models that provide a combination of efficiency and a quality customer experience and the automation of processes to improve operations and service availability, accessibility and effectiveness.
The Bank has employed several initiatives to increase the efficiency of its customer service, such as improving obtaining customers’ email addresses and cell phone numbers to increase digital communication. In addition, the Bank now has one universal contact number (instead of 22) and has improved its automated voice response, reducing the number of calls made to its customer service center by 17% in 2018 as compared to 2017. In addition, the Bank has implemented GALA, an automated assistance program, in Argentina. GALA allows clients to ask general questions about the Bank, products and services 24/7. In 2018, GALA answered more than 100,000 customer inquiries.
In 2018,offered by the Bank also implemented several initiatives to improve customers’ experiences in physical branches. For example, the Bank created a new position in each branch that is responsible for hosting, providing advice and teaching clients to use self-service channels. For the year ended December 31, 2018, the Bank improved its NPS score by 4% to 26% as compared to the year ended December 31, 2017 and personal banking was ranked second among financial institutions in Argentina.based on their needs.
Financial Banking
The Financial Banking Division includes the commercial department, financial entities,institutions, public sector, trading and global markets, and investment products and global custody divisions. Additionally, it is also responsible for the mutual funds business, as the Bank is the main distribution channel for mutual funds.
Commercial DivisionDepartment
The Commercial DivisionDepartment is responsible for consolidating the Bank’s position in the Institutional CustomerCustomers segment (Insurance Companies and Mutual Funds)(funds, ANSES’ sustainability escrow fund (known as “FGS”), and acting as the investmentinsurance companies), and to channel forinvestments from other segments of legal entitiesserviced by the Bank (Corporate, Companies, Public Sector and Financial Entities)Institutions).
The Commercial DivisionDepartment seeks to reinforcedeepen the cross-salecross-selling of financial products and encourageto promote the use of transactional products (collections and payments)payment) and financialcustody of assets, custody products, promoting the integratedintegral development of the entire range of customer products.
During 2019, the behavior of institutional customers was characterized by what the Bank viewed as sound judgment in asset management, generally prioritizing liquidity and short-term investments.
2019 was marked by a high level of volatility in the volume of assets traded by customers, with significant trading in the first part of the year, followed by a sharp decrease later in 2019 as a result of the restructuring (known locally as “reperfilamiento”) of public debt, the lack of private issuances and restrictions on the ability of Argentine investors to accessthe foreign exchange market.
In 2018, prices and secondary trading volumes were highly volatile. Until their final amortization,terms of deposits by entities serviced by this department, the Bank saw an increase in the first quarter of 2019 in the volume of deposits made, followed by a decrease resulting from the replacement of deposits with 1-day Repo transactions directly made by the Mutual Funds in the Argentine Central Bank (during the fourth quarter, Repo transactions became the most important asset in 2018the mutual fund industry portfolio).
However, the income generated by this segment continue to increase, increasing by approximately 60% as compared to 2018.
In qualitative measurements, the Bank continued to lead this segment in terms of volume were the Lebacs issued2019. Market penetration, measured by the Argentine Central Bank. As a result, there was a sharp increasepresence indicator (which measures the number of clients in the tradingmarket that have chosen the Bank as its principal bank or alternative bank), was 88%, and the Bank's leading position indicator (which measures the number of other assets (sovereign and provincial bonds and notes), which increased from a monthly average of approximately Ps.3,000 million in 2017 to Ps.12,000 million in 2018 traded with local customers. The primary market also fell significantly, especially among private issuers.operations performed by clients who have chosen the Bank as its principal bank)was 51%.
The volume of deposits increased substantially during 2018, mainly due to the change in the asset composition of the Mutual Funds portfolio. In the Institutional Customer segment, the average volume increased from Ps.10,018 million as of December 31, 2017 to Ps.25,918 million as of December 31, 2018. This increase was mainly due to interest-bearing demand deposits made by the Mutual Funds.
Financial Institutions
The Financial Institutions DivisionDepartment is responsible, at anthe international level, for managing the Bank’s business relationships with partner banks, international credit agencies, official credit banks, and export credit insurance companies, and, at a domesticthe local level, with banks, financial companies, exchange houses,bureaus, and other entities that carry out related activities.
Similar to prior fiscal
As in previous years, during 20182019 bilateral meetings were held with the most active internationalforeign partner banks in the foreign trade business, through which the Bank channeled the different products and services offered to its customers. Despite Argentina’s unfavorable macroeconomic conditions in Argentina,situation, the availabilitynumber of significant support from international banks, such as the IFC, IDB Invest and CAF, made it possible for the Bank to provides credit lines given to customers did not decrease and meet applicationsrepresented a stable source for providing foreign trade financing to its clients. The Bank also continued to provide letters of credit and standbyconfirm stand-by letters of credit confirmation, as well as customers’ financing needs.for its customers.
As parta core aspect of the Bank’sBanco Galicia’s strategy in terms of sustainable financing, strategy, it continued strengthening its relationshipsto strengthen ties and seekinganalyze additional business opportunities with multilateral agenciesorganizations and official credit banks, such as the IFC, IDB Invest, theProparco, FMO, BNDES, Andean Development Corporation the FMO, Proparco, the National Economic(Corporación Andina de Fomento), DEG, KFW OFID and Social Development Bank, the DEG, the KFW and OFID,OPIC, among others, with the goalpurpose of broadeningexpanding its offer of credit lines in the availability of mid-medium and long-term credit lineslong -term to finance investment projects mainly oriented to the agro-industrial sector, and in the agro-industrial,areas of energy efficiency and renewable energy sectors.energy.
The
Likewise, the Bank also continued developing its businessto develop commercial relationships with Europeanthe main export credit insurance companies, such as Hermes, COFACE, SACE, Cesce, and Cesce,the Export-Import Bank of the United States (or “EXIM”), among others, with the goal of offeringin order to offer medium- and long-term credit linesfinancing to its customers for the import of capital goods.
Domestically,
At the Bank continued analyzinglocal level, the analysis and identifyingdetection of business opportunities with financial institutions focusingcontinued, with an emphasis on the improvement of customers’improving customer’ experience and improving its NPS score.consolidating the Bank’s leading position, in an environment of reciprocity and creating stable and long-term relationships.
Public Sector
The Public Sector Division seeksDepartment is responsible for commercially interacting with the various state agencies at three main levels: National, Provincial and Municipal, providing financial solutions. Throughout 2019, this department continued to position Banco Galicia asstrengthen its presence throughout the leading bank used bycountry.
In 2019, the Bank participated in different Corporate Social Responsibility programs, whose common objective was to encourage cooperation between the public sectorand private sectors. In this regard, we worked on two essential issues: financial inclusion and health.
Despite having gone through an electoral year mainly characterized by offering financial solutions through transactional, investmentgreat volatility and financing products. The Bank’s Public Sector Division continueduncertainty, this Department achieved significant positive results based on the proximity and trust it has with its customers. In the last quarter of 2019, the Bank started to grow at a moderate rate in 2018 as result of an increasedialogue with the new elected authorities in the amount of funds managed by the Bank.different agencies.
Finally, as a result of the foregoing, in 2018 there was a 120% increase inBank’s commercial management, the numbercustomer portfolio of the Bank’s managed public sector loan portfoliosthis segment reached 690 agencies, which allowed, as compared to 2017.2018, an approximately 85% increase in deposit balances, and an approximately 150% increase in income earned.
Investment Products and Global Custody DivisionDepartment
In 2018,
During 2019, the Investment Products and Global Custody Division relaunched Department continued with the development of new investment products and the re-launching of the Bank’s Global Custody product, which is a service provided, by the Bank in which it holds funds in custody for clients and also invests such funds on behalf of its clients. Theclients.
As regards the Global Custody service, during 2019 the Bank also focusedcontinued increasing the product, positioning it, mainly with a focus on its institutional customersoffering such service to strengthen its position ininsurance companies and other corporate entities.
In 2019, this segment and improve its market share. Income from services related to this division increased 90% in 2018department experienced a growth of 123% as measured by assets under custody (AUC) as compared to 2017the previous year, and a 65% increase in the number of institutional customers increased 41%insurance companies served (measured in 2018number of customers), as compared to 2017.2018.
This division
In addition to the above projects, the Investment Products and Global CustodyDepartment is also responsible for defining, prioritizing and managing different technological projects for the Financial Banking and Investment Products department of the Bank. Within the framework of the Bank’s identification, prioritization and management of different technology-related projects. In connectiondigital transformation, in 2019 the investment process continued to go ahead with these digital initiatives, this division undertook two important projects in 2018, which were the (i) replacement of the core system of Investment and Custody Products.
During 2019, the Investment Product DivisionFIMA Funds Subscription and (ii) upgradeRedemptions module was implemented, which enabled the implementation of new functionalities for our customers, such as enabling the digital investment platform,placement of FIMA Funds through new underwriting agents. A new solution was also designed for brokerage and custody of securities, which will allow incorporating new self-management tools and providing a better experience for customers in order to significantly improve customers’ experience.2020.
Trading and Global Markets DivisionDepartment
The
One of the main responsibilities of the Trading and Global Markets Division includeDepartment is the management and administrationoperation of foreign currency positions, financial derivatives instruments, government and corporateprivate securities, either for both proprietary tradingthe Bank’s own portfolio or for brokerage with counterparts, institutional and for counterparties, institutional corporate and individual customers. This divisioninternational customers, companies or individuals. Likewise, this department is also responsible for developing and applyingimplementing the Bank’s investment strategies based on the risk parameters determineddefined by the Board of Directors. By providing comprehensive financial strategic advice, Banco Galicia was able to maintain, even in a year of few issuances, a leading position in the Argentine capital markets offering based on debt origination and structuring for local issuers.
Following
In the international segment, following a favorable context during the first quarter of 2018, therethe year, a strong outflow of funds from Argentine assets was a marked increase inobserved with the removal of assets from Argentina as a result ofconsequent impact on prices and the exchange rate crises and devaluation of the Peso during the remainder of 2018.currency value. Despite high volatility and perceivedrisk perception prevailing in the market, risk, investment bythe Bank’s commercial management of this division resulted in an increase in the number of non-resident investors, (mainlymainly from the United States, England, Brazil and Chile) continued to increase.. After the Argentine Central Bank’s implementation of athe new Central Bank monetary policy onfrom October 1 2018,onward, the Bank started to position its investment in local currency assets, which allowed the Peso renewed in orderBank to take advantage of foreignthe exchange rate stability and the high interest rates.
In the foreign exchange market, Banco Galicia increasedmaintained its volume of transactions by 26% in 2018 as compared to 2017 and assumed the first place rankingposition in the Mercado Abierto Eletrónico (“MAE”) afterS.A. (MAE) rankings, having traded US$ 32,77927,832 million out of the total US$276,690223,324 traded in the MAE in 2018. In2019, increasing its participation in the trading market from 11.85%. in 2018 to 12.46% in 2019. As regards the futures market, Banco Galicia maintained its second placeachieved the first-place ranking in the MAE in 2019, with a total volume of US$4,4221,301 million, increasing its participation from 12.4% in 2017 to 23.6% in 2018 while itto 32.14% in 2019. In ROFEX’s ranking, Galicia ranked fourth again in ROFEX’s ranking (second(third among financial entities)institutions). Theforeign tradevolume transactedtransactions amounted to US$9,12413,435 million, a 48% decrease47% increase as compared to 2017.2018. In addition, Dollarthe number of trading transactions performed well, increasingin banknotes expressed in US dollars increased slightly, from US$5,799 million in 2017 to US$6,521 million in 2018.2018 to US$6,657 million in 2019.
From January 2019 to December 2019, Banco Galicia ranked second in the MAE’s total fixed income ranking in 2018, trading US$81,515 million of the total US$691,609 million traded in the MAE, representing 11.8% of the market share. In addition, Banco Galicia heldwent from the third position to the second position in the fixed income ranking prepared by Bolsas y Mercados Argentina in 20182019 with a total of Ps.266,536 million of the Ps.2,884,588Ps.292,210 million traded in the Argentine market, representing 9.24%5.82% of the Argentine market share and making it the lead market leader in terms of market share.
With respect In turn, from January 2019 to primary issuances,December 2019, Banco Galicia went from second to third place in the total fixed income ranking prepared by the MAE with a total of US$ 25,683 million representing 10.83% of the Argentine market share
Digital transformation
On the road to transformation
The Bank’s customers and new competitors challenge the Bank maintainsto continuously evolve and offer experience enhancing services that are straightforward and agile. For this reason, during 2019 Banco Galicia accelerated its first place ranking indigital transformation, understanding it as an essential means to achieve efficiency and growth, while maintaining its culture, and its values of trust and transparency.
With the MAE’s consolidated rankingpurpose of placement agents (notes, trusts and sub-sovereign securities in the aggregate) with Ps.39,271 million placed during 2018, representing 20.1% of the total issuances placed in the local market, as compared to the Ps.32.864 million placed bydeveloping these new technologies, the Bank during 2017, representing 16.3% of the total issuances placed in the local market.
Customer Experience
To improve customers’ experienceorganized open courses for employees on Introduction to Agility, UX (“User Experience”), Design, Design Thinking and improve culture, the BankDigital Mindset, and implemented the projects described below. In 2018, the Bank carried out five major projects aimed at improving customers’ experience:
Design and implementation of improvements and new experiences based on the “Customer Journey” methodology. The goal of this methodology is to improve customer interaction through multidisciplinary teams made up of technology, business and design experts looking to understand and decode customer needs in order to create solutions by applying technological innovation.
Implementation in the Bank of the “Customer Experience Channels Project”, which includes initiatives to resolve or mitigate customer dissatisfaction with customer service channels.
Identification, prioritization and elimination or mitigation of customer complaints.
Implementation, through the GALA platform, of the use of WhatsApp as a mode of communication with clients to facilitate and improve customer service. GALA was first implemented in 2017 on BancoGalicia.com and was launched in 2018 on WhatsApp and on the Bank’s online banking platform to provide 24-hour service to customers.
Reduction of the number of issues resulting in claims filed by customers. Building on the Bank’s 2017 initiative, this initiative continued in 2018 astraining activities for employees who are part of the “First Contact Resolution” program. The goalteams where an initial and general vision of the agile methodology was addressed.
First Tribes
Banco Galicia is taking steps to resolvedevelop a new organizational design based on agile methodologies to enhance its customer complaints and requests onexperience. Offering the best customer experience in Argentina continues to be the Bank’s first contactmain challenge and goal, while focusing on achieving efficiency that enhances growth.
After a year of positive results in its digital transformation, in 2019 Banco Galicia decided to modernize its operating structure with the relevant customer. With respectaim of becoming a fully agile organization, that is flexible, and efficient in adapting to complaints relatedits clients’ changing needs and more sophisticated requirements.
Thus, the Bank reorganized its current teams and encouraged the internal mobility of its employees. In 2019, multidisciplinary teams, named “Squads”, were created. Squads are formed by employees of different backgrounds (coming from technical and commercial areas). The Squads take on smaller challenges, which allows them to commissions, more than 50%deliver faster and continues solutions to our customers.
Each Squad works as a specialized, autonomy body part of a larger group, named “Tribe”. The Tribes are in charge of assigning tasks to the Squads and give them autonomy to develop new ideas of services and products (or to improve or adapt the existing ones to the current needs of our clients) to achieve greater customer satisfaction, from a commercial and digital standpoints.
During 2019, the Bank created the following Tribes:
Collections and Payments: Created to transform the Bank’s collections and payments area and revolutionize the market with products and services that enable the Bank to digitalize the entire flow of collections and payments of the different aspects of customers resolved their claims onlifes. The goals of this Tribe are to; (i) transform the Bank´s services for collections and payments, and be chosen as the customer’s first contactoption for both current and new collection and payment products, (ii) develop new products that revolutionize the collection and payment market; and (iii) offer customers digital management tools and paperless interactions.
Everyday Banking: Created to revolutionize customers' daily life, by providing a simple, but differentiated experiences for checking and savings accounts related products, and related services. The goals of this Tribe are: (i) provide the best market experience for everyday bank products for individual customers, with the Bank.goal of obtaining NPS of 33 in 2020; (ii) become the customers’ first choice for checking and savings accounts and related services, with the goal of reaching a 6.7% market share in transaction deposits by 2020; and (iii) improve checking and savings accounts and related services.
Lending: Created to enhance business development and growth for Corporate, Companies, Agricultural, SMEs and Public Sector customers, offering simpler and timely financing to maximize their profitability and ensure a differentiated experience in the market.
Segments: Created with the challenge of accompanying each customer in their daily activities, generating the best value and relationship proposal in the market, ensuring sustained growth of retail business and retail SMEs.
Customer Trips: Created to increase the efficiency of the customer’s critical travels.
Omni-channel: Created to develop and maintain an enabling omni-channel platform, providing autonomy and to reduce the Bank’s time-to-market through the granting of autonomy for channel squads and the building of accelerators.
Consumption
Through Tarjeta Naranja, Grupo Financiero Galicia offers financing to low- and medium-income customer segments.
Tarjeta Naranja continued consolidating its leading position in the regional credit cards market in 2018.2019. According to official data and private market studies, the Bank is the primary issuer of credit cards domestically and is ranked as the leading credit card brand in rural areas of Argentina.
In December 2018,2019, Tarjeta Naranja issued 3.23.0 million account statements, 6% less than in 2017.2018. Authorized cards totaled 8.88.6 million, including Naranja Clásica, Naranja Visa, Naranja MasterCard and Naranja American Express. In addition, purchase transactions at stores increased 8%decreased 5% as compared to 2017.2018.
Tarjeta Naranja, Tarjetas Regionales’ main subsidiary, will continue to rely on its strategic pillar of “Organizational Culture and Customer Experience” to grow its customer base and business.
In connection with the Bank’s Digital Transformation, Tarjeta Naranja created two Tribes the:(i) Assisted Channels Tribe and (ii) Credit Cards Tribe.
Tarjeta Naranja also adapted to a more agile way of operating by creating multidisciplinary and autonomous business intelligence teams. These teams operate under the guidelines of collaborative work and agility and focus on creating and testing the MVPs (products and services in an initial stage of development). Technological improvements were also incorporated into a new app offered by Tarjeta Naranja and a redesign of Naranja Online (“NOL”).
Another highlight during 2019 in terms of consumption was the launching of Naranja X, the virtual wallet from Tarjeta Naranja, which focused on technology and digital channels. For more information see “Sales and Marketing”-“Service Channels”-“Digital Channels”-“Naraja X”.
Galicia Seguros
Galicia Seguros provides life, property and casualty insurance to customers. With respect to property and casualty insurance products, Galicia Seguros primarily underwrites home and ATM theft insurance. With respect to life insurance, group life and personal accident insurance are its most significant source of revenues. Galicia Retiro offers annuity products and Galicia Broker is an insurance broker.
Galicia Seguros, Galicia Retiro and Galicia Broker are subsidiaries that operate exclusively in Argentina and their total insurance underwriting was equal to Ps.3,902Ps.4,857 million in 2018.2019.
Galicia Retiro’s business plan forRetiro was the first company in launching a retirement insurance with 100% digital procurement during 2019.
In line with the Bank’s digital transformation, during 2019, is to maintain its current business and relaunch voluntary retirement products (for both individuals and groups). Galicia Seguros has been developing alternative sales channels and new points of contact and sales, to increase the Bank’s insurance customer base.
Additionally, its business initiatives for 2019 are as follows:
boosting the business with supplementaryNaranja X worked together by adding specific products to Banco Galicia’s core business, adjusted to each segment;
expanding the sale ofNaranja X app such as offering a digitally managed free insurance to companies;
making management effectiveusers for the protection of their mobile phone screens. While the amount of screen damage covered by this insurance increases as the user performs more operations through the App, the insurance continues to supportbe free. Also, in line with the business volume growth and updatingDigital Transformation, Galicia Seguros launched the management system;
consolidating itsfirst retirement insurance positionin Argentina that could be fully subscribed for individuals, taking advantage of synergies with Grupo Galicia and developing an over-the-counter market and additional channels;online (the Futuro Mutual Fund).
minimizing expenses; and
fostering a positive work environment.
Other Businesses
Galicia Administradora de Fondos
Since 1960, Galicia Administradora de Fondos has been engaged indedicated to the managementadministration of the FIMA mutual funds marketed toCommon Investment Funds that are distributed through the different commercial channels of Banco Galicia’s clients. In 2018, new distributors were added to reach additional customers.Galicia. It currently has a wide range of investment funds designed for each investor profile, allowing a varietywhich allows all types of investors to easily access the capital marketsmarket through the various FIMA funds with as little as Ps.100 or US$100:Fima funds.
During 2019, the following initiatives stood out:
- “Hacete Cliente” Landing: We allowed any user who enters our website fondosfima.com.ar, to become, by using digital tools, a customer of Banco Galicia and Fima. With a few easy steps, individuals can become customers without having to physically go to one of the Bank’s branches.
- Start of Transactions Expansion from 4 a.m.:We provided digital tools so that subscription and redemption operations can be carried out during all hours that the market is open, from 4 a.m. to 4 p.m., through any of our digital channels: Galicia Online Banking, Office Banking and the Galicia App.
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Time Deposit Funds: These funds mainly invest in time deposits and interest-bearing checking accounts held at financial institutions, which grant a high degreeTable of liquidity and steadiness in their returns. (Fima Premium).
Bond Funds: These funds invest in local
- Customer Account and
foreign government and private securities with different risk profiles and tenors. Some funds invest in Peso-denominated securities (FIMA Ahorro Pesos, FIMA Ahorro Plus, FIMA Renta en Pesos, FIMA Renta Plus, FIMA Capital Plus) and others in Dollar-denominated securities (FIMA Renta Dólares I and FIMA Renta Dólares II). Beginning in 2018, some of these funds also invest in international bonds (FIMA Renta Fija Internacional).
Equity Funds: These funds investScheduled Transactions Registration in the corporate securitiesApp from 4 p.m. to 8 p.m.: Since 2019, the Galicia App allows customers to schedule transactions up to 60 days in advance and manage their account registration.
- New Fima Mix I portfolio composition:We relaunched the Fima Mix I with the goal of adapting to market requirements and providing a new alternative that operates in Argentine
companiespesos but in a mixed portfolio of Latin American bonds and ETFs of shares listed on theCNV. In addition,New York Stock Exchange. With this fund, a new category is inaugurated in FIMAAcciones Latinoamérica, raisedfor year 2019: international mixed income funds that enable operations inNovemberArgentine pesos in foreign markets.
- Composition Change of Fima Capital Plus: This fund was originally aimed at mitigating the impacts of inflation. During 2019, its asset manager changed the fund asset allocation to dollar-denominated assets, allowing local currency investors to partially hedge their foreign exchange exposure.
- Fima Placement Agents: This distribution channel that began in 2018
invests in companies listed onends 2019 with eight placement agents, that market theS&P Latin America 40 Index, which includes shares fromBank´s Fima Funds throughout themajor economic sectors in the main regions of Latin America.
The increase in the use of investment funds by individual investors has been facilitated by tools that streamline investment decision-making and investment generally. The Galicia Administradora de Fondos website (fondosfima.com.ar) provides investors with comprehensive information regarding its funds, as well as an online investment simulator and an investor education section.
Due to our financial holding structure, competition is experienced at the level of our operating subsidiaries. We face strong competition in most of the areas in which our subsidiaries are active. For a breakdown of our total revenues, for each of the past two fiscal years, for the activities discussed below (i.e., banking, regional credit cardsTarjetas Regionales and insurance), see Item 5. “Operating and Financial Review and Prospects”-A. “Operating Results”.
Banking
Banco Galicia faces significant competition in all of its principal areas of operation from foreign banks operating in Argentina (mainly large retail banks which are subsidiaries or branches of banks with global operations), Argentine national and provincial government-owned banks, private-sector domestic banks and cooperative banks, as well as non-bank financial institutions.
Regarding private-sector customers, Banco Galicia’s main competitors are large foreign banks and certain domestically owned private-sector banks. Banco Galicia also faces competition from government-owned banks.
Banco Galicia’s estimated market share of private-sector deposits in the Argentine financial system was 11.08%9.92% as of December 31, 2019, as compared to 11.09% as of December 31, 2018 as compared toand 10.20% as of December 31, 2017 and 9.86% as of December 31, 2016.2017.
With respect to loans extended to the private sector, Banco Galicia’s Argentine market share was 11.57% as of December 31, 2019, as compared to 10.51% and 9.65% as of December 31, 2018 as compared to 9.65% and 9.63% as of December 31, 2017, and December 31, 2016, respectively, according to the information published by the Argentine Central Bank.
According to the information published by the Argentine Central Bank, as of December 31, 2018,November 30, 2019, Banco Galicia was the largest private-sector bank as measured by its assets and loan portfolio and second as measured by its net worth and deposits.
Banco Galicia believes that it has a strong competitive position in retail banking, both with respect to individuals and SMEs. Specifically, Banco Galicia believes it is one of the primary providers of financial services to individuals, the primary private-sector institution serving SMEs, and has traditionally maintained a leading position in the agriculture and livestock sector.
Argentine Banking System
As of December 31, 2018,2019, the Argentine financial system consisted of 78 financial institutions, of which 63 were banks and 15 were financial non-bank institutions (including(i.e., finance companies, credit unions and savings and loans associations)companies). Of the 6362 banks, 13 were Argentine national and provincial government-owned or related banks. Of the 50 private-sector banks, 3334 were private-sector domestically owned banks and 1716 were foreign-owned banks (i.e., local branches or subsidiaries of foreign banks).
As of December 31, 2018,2019, the top 10 banks, in terms of total deposits (excluding Argentine national and provincial government-owned banks), were: Banco Santander Río, Banco Galicia, Banco BBVA Banco Francés,Argentina, Banco Macro, HSBC, Credicoop Bank and ICBC. Banco Galicia, Banco Macro and Credicoop are domestically owned banks and the others are foreign-owned banks. According to information published by the Argentine Central Bank as of December 31, 2018,2019, private-sector banks accounted for 55.7%57.1% of total deposits and 61.3%60.5% of total net loans in the Argentine financial system. As of the same date, financial institutions (other than banks) accounted for approximately 0.3% of deposits and 3.4%3.1% of net loans in the Argentine financial system.
As of December 31, 2018,2019, the largest Argentine national and provincial government-owned or related banks, in terms of total deposits, were Banco Nación, Banco de la Provincia de Buenos Aires and Banco Ciudad de Buenos Aires. Under the provisions of the Financial Institutions’ Law, public-sector banks have comparable rights and obligations to private banks, except that public-sector banks are usually chosen as depositaries for public-sector revenues and promote regional development and certain public-sector banks have preferential tax treatment. The
bylaws of some public-sectorpublic-sector banks provide that the governments that own them (both national and provincial governments) must guarantee their commitments. According to information published by the Argentine Central Bank, as of December 31, 2018,2019, government-owned banks and banks in which the national, provincial and municipal governments had an ownership interest accounted for 44.0%42.6% of deposits and 35.3%36.4% of loans in the Argentine financial system.
Consolidation has been a dominant theme in the Argentine banking sector since the 1990s, with the total number of financial institutions declining from 214 in 1991 to 78 as of December 31, 2018,2019, with the ten largest banks holding 78.7%77.8% of the system’s deposits from the private sector and 74.6%75.4% of the system’s loans to the private sector as of December 31, 2018.2019.
Foreign banks continue to have a significant presence in Argentina, despite the fact that the number of these financial institutions decreased from 39 at the end of 2001 to 1716 as of December 2018,2019, and the fact that their share of total deposits has decreased since the 2001-2002 financial crisis while the share of domestic private-sector banks has increased.
The Argentine banking sector focuses on transactional business and lacks a robust supply of medium and long-term lending. Local financial system deposits and loans are equivalent to 21.7%17.1% and 14.6%11.3% of the GDP respectively, well below those same ratios for other countries in the region.
Regional
Credit Cards
In the consumer loan market, the Regional Credit Card Companies competeTarjeta Naranja competes with Argentine banks and other financial institutions that target similar economic segments. The main players in this segment include Banco Supervielle, Banco Columbia, Banco Comafi, Banco Credicoop, Banco Macro, Banco MasVentas, Banco Municipal de Rosario, Banco Nación (Nativa card), Banco de Córdoba (Cordobesa card), Cabal card, Tarjeta Shopping card and CFA (Efectivo Si). Historically, certain international banks with a presence in Argentina have attempted to target consumers in these economic segments and have been, to date and for the most part, unsuccessful.
In order to compete effectively at a national and regional level, the Regional Credit Card Companies targetTarjeta Naranja targets low- to middle-income clients by offering personalized services in each region, focusing their commercial efforts mainly on such segments. While other Argentine credit card issuers and consumer loan providers focus on earning interest on outstanding personal loans and credit card balances, the Regional Credit Card CompaniesTarjeta Naranja also focus on and havehas access to additional sources of revenues including merchant fees and commissions, which allow themallows it to offer competitive pricing and financing terms. Furthermore, unlike other credit card issuers in Argentina, approximately 50%26% of the Regional Credit Card Companies’Tarjetas Regionales’ clients pay their credit card bill through their branch network. The broad geographical reach of their distribution network, which is the second largest in Argentina, has allowed the Regional Credit Card CompaniesTarjetas Regionales to establish a local presence in all the provinces of Argentina.
The Regional Credit Card Companies believeTarjeta Naranja believes that their diversified and consistent funding sources, significant network of branches, robust information technology infrastructure, relationships with over 270,000273,000 merchants and the brand recognition they enjoy provide them with a competitive edge to consolidate and expand their market share in their target market segment, making it difficult for new players to effectively compete in this market segment on a national scale.
Insurance
Sudamericana’s subsidiaries face significant competition since, as of December 2018,31, 2019, the Argentine insurance industry was comprised of approximately 176190 insurance companies, 13 of which were dedicated exclusively to annuities. Subsidiaries of foreign insurance companies and the world’s largest insurance companies with global operations are among these companies.
During 2018,2019, the insurance industry continued growing.continue to grow. Production amounted to Ps.391.7 billion, 30%Ps.534.6 million, 36% higher than the level recorded for the prior year. Out of the total insurance production in 2018,2019, 83% related to property insurance, 15% related to life and personal insurance, and 2% related to retirement insurance.
Within the 83% corresponding to property insurance, the automotive insurance segment continues to be the most significant segment, representing 44%45%, followed by the workers’ compensation segment, representing 30%. Within the life insurance segment, the group life insurance segment was the most significant, representing 57%52%, followed by individual life insurance, representing 22%23%, and personal accident insurance, representing 15%17%.
As of December 31, 2018,2019, based on internal studies undertaken by Galicia Seguros, it is estimated that GaliciaSeguros ranked thirdfourth in terms of net premiums for personal accident insurance underwritten and first in terms of net premiums for home and theft insurance underwritten.
Sales and Marketing
Service Channels
Grupo Galicia’s subsidiaries interact with their customers through a variety of marketing channels, which include digital tools and physical branches, tailored to meet specific customer needs.
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Phone Banking | 73,133 |
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Digital Channels
In 2018,
Grupo Galicia undertook the strategic commitment to transform into a comprehensive financial platform, that provides agile and efficient services to make life easier for its customers. Thus, during 2019 Grupo Galicia continued to improvework to innovate and provide innovative services through its digital channels in responsethat were tailored to customer demandsthe different needs of its customers.
Banco Galicia, Tarjeta Naranja and as a means of providing informationGalicia Seguros have websites that have been updated and that and allow customers to operate and use the various services and benefits offered by Grupo Galicia. Grupo Galicia offers cutting-edge apps for its customers, and a channelphone assistance, as well as personalized support by WhatsApp and virtual assistants to solve inquiries presented by customers.
Banco Galicia
During 2019, Banco Galicia provided solutions and responded to inquiries from more than 1,400,000 customers who communicated with the Bank through digital channels designed for different ages and customer service, including through improved service response time and by offering customers the ability to submit customer service requests 24/7.
profiles. In 2018,2019, Banco Galicia’s digital channels were usedincluded the (i) “Éminent Conecta Advisors” for high-income individuals, (ii) “Galicia Rural Conecta” for companies in the agricultural sector, (iii) Galicia App for other individuals and companies, (iv) the online banking platform and (v) customized telephone service provided by more than 1.3 millionWhatsApp, for which it conducts customers' training and awareness so that customers of all agesare able to use such phone service in an agile and demographic backgrounds. As such,efficient manner.
Additionally, Banco Galicia collects usage data and statisticspromotes the customers’ self-management in branches so that they can use the digital channels therein. Branches have posters with GALA’s (Banco Galicia's Virtual Assistant) QR code, to identify what actions are most frequently used byassist customers to prioritize such actions onsolve inquiries about passwords or other procedures. Once the client scans the QR code with its platforms. In May 2018, Banco Galicia launched Instagram for Galicia ÉMINENTphone, it can access GALA’s platform and a Twitter account to provide daily updates and important information for the SMEs segment.solve their password problems by themselves.
Tarjeta Naranja provides information to customers regarding transactions, purchases made, due dates, payments made, withdrawals, transfer notices, balance queries and mobile transfers. In 2018, Tarjeta Naranja incorporated technological assistance, which provides remote advice on the use of technological devices.
In 2018, Galicia Seguros achieved 100% digital insurance self-management by developing digital policies, which include audiovisual information and explanations regarding insurance coverage and packages. Moreover, customers can easily access their policy information digitally through their email.
Physical Channels
Banco Galicia and Tarjeta Naranja have an extensive network of branches throughout Argentina, providing for in -person contact with customers. In addition, Galicia Seguros uses Banco Galicia’s infrastructure to provide personalized customer service. Banco Galicia’s dedicated customer service officers are qualified to help companies, retailers, investors, payroll employees and the general public and to advise customers and prospective customers on the best credit and financing options to meet their individuals needs.
Customers can handle all of their transactions through ATMs at these branches. Branches are located throughout Argentina based on the number of customers served in each province.
In 2018, the Bank partnered with Starbucks to open its first branch inside a Starbucks in the Recoleta neighborhood of Buenos Aires. This location offers different services, including internet access, extended hours, co-working spaces and meeting rooms for both customers and non-customers. In addition, the Bank offers personalized service through host officers who provide advice on ATMs, encourage customer adoption of digital channels and resolve queries or claims.
Products and Services
Grupo Galicia, through its subsidiaries, offers its customers in Argentina tailored and unique service, including credit cards, personal, mortgage and corporate loans, and a wide range of insurance and investment products focused on various segments.
Personal Loans
Interest and inflation rates, together with consumption, remained stable for the three months ended March 31, 2018, contributing to a high volumes of loans averaging Ps.1,700 million per month. Following the onset of the exchange rate crisis and devaluation of the Peso in May 2018, loans decreased to Ps.1,000 million per month. As a result, the amount of UVA-denominated loans increased due to their lower interest rates and delayed repayment structure. As the exchange rate crisis continued in 2018, the Bank implemented several loan default prevention measures to maintain a healthy loan portfolio.
In addition, Tarjeta Naranja offers simple, safe and convenient online and digital customer service for its loan customers through Naranja Online and the Naranja APP.
Mortgage Loans
In 2018, the volume of UVA-denominated mortage loans increased as a result of the exchange rate crisis; however, the amount of UVA-denominated loans decreased. In the beginning of 2018, the average loan made by the Bank per month was Ps.750 million. Following the onset of the exchange rate crisis, the average loan made by the Bank per month was Ps.200 million. During 2018,2019, Banco Galicia continued to be a leader among private banksexpand its business strategy and presence through social media, joining Instagram with different accounts for UVA-denominated mortgage loans.each of Banco Galicia, also began making loans for constructionGalicia MOVE, Talentos Galicia and home expansionGalicia Éminent. Galicia MOVE shows Galicia's digital proposal in a more unstructured way, communicates promotions and renovations, as well as home purchasesprovides customer service. Talentos Galicia is an account devoted to generating an internal facing company brand, which seeks to spread the Bank's culture and working methodologies within the organization in order to provide its customers with broader financing offerings.attract individuals interested in working in the Bank.
Individual and Corporate Insurance
In 2018, Galicia Seguros continued to focus on improving customer experiences. Responding to demands for greater self-service options, Galicia Seguros’ online quotation system now provides customers with the ability to compare the automobile insurance policies provided by a variety of insurance companies. Customers can also purchase their home, mobile phone, personal, bicycle and laptop insurance online by immediately obtaining quotes online and consulting digital customer service. Customers can chose among different service methods according to their personal preferences.
Also, given the importance of small- and medium-sized companies in overall economic development in Argentina, the Bank launched SME Comprehensive Insurance in July 2018 following an analysis of insurance market trends and customer needs. The main objective of this product is to provide comprehensive protection to small- and medium-sized companies by safeguarding business assets and providing customized insurance options at affordable rates. This product is also offered to independent professionals, as well as business owners. Amounts insured and insured businesses increased during 2018 following the launch of this product.
Tarjeta Naranja independently markets and offers the following insurance policies: Home, Guaranteed Consumption, Unemployment, Protected Purchase, Personal Accidents, Protected Woman, Health, Life, ATM Theft, Protected Bag, Automobile, Motorcycle, Motorcycle Assistance, Mobile Phone, Travel, Multi-Assistance, Used Appliances, Mobile Technology and Comprehensive Pet insurance.
Banco Galicia
Banco Galicia meets its customers’ needs by offering range of services and benefits, through its Galicia credit and debit cards.The Bank markets Visa, Mastercard and American Express cards, covering all segments. The product range includes International, Gold, Platinum and Black/Signature cards with different spending and financing options and promotions for all customers.
Tarjeta Naranja
As
Tarjeta Naranja’s website is the starting point for accessing all of June 2018, its products and services. Tarjeta Naranja Clásica mergedis a company characterized by its strong culture. Through Naranja.com, it is constantly working to be able to position itself and convey the brand identity hand in hand with institutional information, as well as advancing its entire cultural agenda.
Thus, Naranja Ororedesigned its sales-oriented Naranja.com website agile, dynamic and became NARANJA,useful content - by using cutting-edge tools for the financial industry, which, in 2019, contributed to improved performance and management response times. At the closing of the 2019 fiscal year, Naranja Online recorded an average of 4 million visits per month, which represented a 23% increase in visits per month as compared to fiscal year 2018. Tarjeta Naranja also launched the new base productNaranja APP with enhanced technology, enabling to grow by 221% in the number of active users, as compared to 2018.
Through its corporate page, Tarjeta Naranja aims to offer its customers accessible web content that can be accessed from their mobile phones, with better loading speed, as well as agile, dynamic and useful content. Users of Naranja.com can now obtain their cards online, in less than 5 minutes.
In order to fulfill the aforementioned objectives, the following technologies are Tarjeta Naranja allies to provide the best experience:
- Progressive Web App (PWA): To optimize loading speed, mobile performance and offline navigation. Naranja is the first site of the Argentine financial sector to use this technology.
- Angular 6: This front-end technology positions Tarjeta Naranja at the forefront, as it makes it easy to create advanced and easy-to-maintain web applications.
In 2019 Tarjeta Naranja redesigned its digital platform to obtain greater performance, availability and solid foundations to be able to scale up to the demand of current and future customers, considering NOL (Naranja Online) an essential part of Tarjeta Naranja’s products and services ecosystem. The new NOL was fully implemented in the Amazon Web Services (“AWS”) cloud, using a micro-services architecture enabling us to access customers'’ information, thus ensuring consistency with all the information accessed coming from the same data source. In terms of customer experience, the new design and the information architecture of NOL are based on the technology of Angular + PWA, front-end systems, which provides a better customer experience, and offers “Plan Zeta”the possibility to adapt the site to the devices through which customers access the platform, enhancing the experience of information use and access.
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Finally, Tarjeta Naranja provides customers with different channels for accessing products and services wherever the customer is located, 24/7. Such digital channels include:
- Naranja Services in your Mobile Phone: It allows receiving text messages with information related to transactions, purchases, due dates, payments made, withdrawals, transfer notices and balance inquiries. It also provide the opportunity to recharge mobile credit via SMS.
- Mobile Phone Recharge: Through NOL, Naranja APP and the self-inquiries terminals (terminales de autoconsulta or“TAC”) of Casas Naranja, customers can recharge credit on their own or any other mobile phone, without need for cash, to be paid in the statement of account of the following month.
- Tienda Naranja, Naranja Marketplace: 2019 was focused on building a platform centered on customer experience, which was launched by the end of the year. The objective was to be able to offer customers a greater variety of products and services through this channel.
Naranja X
In the framework of the strategy and synergies proposed for the companies controlled by Tarjetas Regionales S.A. for the development and evolution of the technology-based ecosystem of products and services, during the first quarter of 2019, the digital wallet called “Naranja Cuenta” or “NCuenta” launched a pilot app in Córdoba, which later was rolled out nationwide, for Android and iOS users. Through an online registration and a validation process, this app enables the use of the mobile phone to pay for services, send or receive money between accounts, pay with a QR code in shops, and recharge the local transport card.
Subsequently, in order to address the need to contain the digital services ecosystem in one a specialized company, Cobranzas Regionales S.A. became involved in the development and use of this product. In this regard, Tarjeta Naranja entered into license contracts for the use of brands and their respective logos with Cobranzas Regionales S.A., with the purpose of linking its trademark with new products that incorporate technology and participate in the digital universe.
Galicia Seguros
During 2019, Galicia Seguros updated its website in order to allow customers to access to their insurance information from their mobile phones. Additionally, it developed an exclusive service channel for Integral SMEs customers, which includes customized advising, prevention tips, and greater agility. Galicia Seguros digital channels include:
.
- Corporate Web (www.galiciaseguros.com.ar): in 2019, Galicia Seguros re-launched its website with a more user friendly and updated design for customers.
- E-mailing: Communications are sent to customers through automatic processes, informing them of the status of their inquiries, claims or requests. A digital welcome pack, which is received after the insurance is subscribed for, was designed, with simple and user-friendly information on the insurance coverage. The package includes a summary of the coverage and services contracted for, risk prevention tips and information on how to report a claim.
- Email Marketing: Galicia Seguros uses this tool to conduct promotional campaigns on new products, new coverages, product enhancement, etc. In turn, it also emails relevant information to customers, strengthening the bond with the brand.
- Sales Call Center: Customers can receive advice on the different products by contacting a 1-800 line.
- Customer Service Center: Galicia Seguros has an
optionexclusive 1-800 line for individuals and companies, and an email box (infogalicia@galiciaseguros.com.ar) through which customers can receive information about their coverage and manage their need.
Finally, during 2019 Galicia Seguros implemented the following measures through digital channels:
- Availability of policy applications for automated calls and channels such as Banco Galicia Online Banking, with an impact on efficiency, channels and customer experience.
- Internal exclusive telephone hotline and WhatsApp for Grupo Financiero Galicia's employees to assist them on how to manage claims or process another type of inquiries.
- Streamlined processing of claims related to homeowner policies.
- Extension of service hours in Social Media from 8:00 a.m. to 8:00 p.m (which are the same as the phone service hours), aiming at omni-channel homogeneity.
Physical Channels
Banco Galicia and Tarjeta Naranja have a network of branches throughout Argentina, providing face-to-face services, and bringing services close to customers. Galicia Seguros also promotes personalized attention through Banco Galicia branches.
With the focus on improving customers’ experience, Banco Galicia has transformed face-to-face services and has migrated to automatic or digital channels, with self-service terminals located in branches with extended hours and providing exclusive money withdrawal channels for customers to finance their debt payments in three or six monthly installments.a simpler way, withoutusing a debit card. In addition, all branches, 100% of market transactions can be made through automatic banking.
Tarjeta Naranja designed a new service model in its branches, called “Casas del Futuro”. These are spaces that allow Tarjeta Naranja revised to provide face-to-face services, resolution of problems at the form first contact and personalized training on how to use the available digital tools. The strategy of its account statementsthis model is to offeruse cutting-edge technology that is simple and intuitive. In 2019, the Casas del Futuro were opened in strategic locations of the City of Buenos Aires, and the provinces of Buenos Aires and Cordoba.
Products and Services
With a more streamlined format. strategic vision to become a financial platform, we provide products and services tailored for each customer, individual or company, including personal and mortgage loans, insurance, credit cards, foreign trade operations, business financing, investment, and the Fondos Fima.
Personal Loans
During the first semester of 2019, Banco Galicia‘s interest rates were stable, which allowed loans to be placed at levels of, on average, Ps. 1,300 million per month. Beginning in August 2019, the average monthly value of loans granted was affected due to a significant increase in interest rates, falling to Ps.850 million per month, and, in turn, the acquisition of the UVA modality stopped. Subsequently in November, interest rates decreased again and the average monthly value of loans granted was similar to those seen at the beginning of 2018 (period dominated by low interest rates), with the average monthly value of loans granted being Ps.1,450 million per month.
Banco Galicia created a loan product exclusively designed for salaried customers, aimed at enabling them to better manage their finances. The type of loan is tailored to each person's salary and can be obtained in an immediate manner through Online Banking. Therepayment term for the loan is between 2 to 45 days, with the customer selecting the term, and no commission is charged for prepayments.
Mortgage Loans
The Bank’s UVA denominated mortgage-backed loans were directly affected by the economic context of the country.
In addition, Tarjeta Naranja offers the first months of 2019, prior to the escalation of the value of the U.S. Dollar as compared to the Peso, the monthly average placement of UVA denominated mortgage-backed loans was of Ps.17 million. By August, however, the average placement had fell to an average monthly placement of Ps.11 million. Nonetheless, the biggest impact on the placement values occurred following products:
Naranja Teen: the enactment of the new foreign exchange restriction in November, which led to a credit card only offereddecrease of average monthly placements to individuals between Ps.2 million in December.
During 2019, Ps. 246 million were granted in UVA denominated mortgage-backed loans, of which approximately 80% corresponds to UVA modality, while 20% were provided through Procrear, a subsidizedgovernmental program.
E-Checks
Banco Galicia implemented transactions using electronic checks, which resulted in a saving of 1.4 million sheets of paperby customers (48% SMEs). In 2019, Banco Galicia issued 4,800 E-Checks, making the agesBank the largest provider of 13 to 17. It operates as an additional credit cardelectronic checks in Argentina for such year, with a monthly purchase limit set by the cardholder.
Naranja Instantly: since 2017, Tarjeta Naranja has increased the usemarket share of Ajnaran, an instant credit card issued on the spot so that the cardholder can immediately make purchases.75% of electronic checks issued.
Naranja Visa, MasterCard y American Express: Tarjeta Naranja’s customers can enjoy all Visa, Mastercard
Individual and American Express promotions and plans, with access to more than 29 million participating merchants, emergency card replacement in the event of loss or theft and other benefits.
InvestmentsCorporate Insurance
In 2018, Banco
Galicia continued to work on improving its investment value proposal and its customer experience by expanding its product range, simplifying product operations and providing more proactive advice to customers.
Banco Galicia providesSeguros has a wide range of products accordingthat, in turn, provide a large number of different insurance coverages, fully covering the different needs of customers, based on their occupation, age or income level.
Insurance is sold to each customer’s needs and investor profile. Before investing in securities or mutual funds, it conducts a surveycustomers of all customersBanco Galicia as well as of Tarjeta Naranja, so that they areGalicia Seguros scope of business includes the entire country and every economic segment. Galicia Seguros offers specific coverage through its broker, so that each customer feels protected and has support in everything it needs.
In 2019, Galicia Seguros launched “Fondo Futuro”, a new 100% online retirement insurance product. Fondo Futuro is the first retirement insurance with 100% digital procurement. It is a low-risk medium or long term savings and individual pension system. It works as a retirement supplement, to carry out an individual’s desired retirement plan. The individual insured may partially or totally withdraw the funds, as well as increase, decrease or suspend the contributions made, without generating any debt with Galicia Seguros. The launching of Fondo Futuro made Galicia Seguros the first Argentine entity to be able to identifyissue a 100% online policy with this type of insurance.
Along with the launch of Fondo Futuro, Galicia Seguros updated the coverage of Family Protection (life) insurance in order to adapt it to the current needs of customers. If a customer procures both the Fondo Future and the Family Protection insurances, they were entitled to deduct up to Ps.24,000 from the income tax base (Ps.12,000 are deducted for each insurance) for 2019. This amount increases to Ps.38,000 for year 2020. Finally, Galicia Seguros retained the leadership in the combined family and robbery coverage sector
Credit Cards
The companies of Grupo Financiero Galicia respond to the needs of their profile to selectcustomers with an outstanding offer of services and benefits of credit and debit cards.
For six years, Tarjeta Naranja has been the investment products that best fit their investment objectives. main issuer of credit cards nationwide, and the leading brand in the interior of the country. The new technologies implemented by Tarjeta Naranja allow for contactless payment operations, which are faster and safer for customers.
Banco Galicia offers adviceresponds to its customers' needs with a specialized and feature offering for services and benefits provided through its Investments Center or in person at its branch offices. Information on each Galicia credit and debit cards. The Bank also offers Visa, MasterCard and American Express cards, covering all segments. The product is also available on the Bank’s website.range includes International, Gold, Platinum, Black/Signature cards, and they have different consumer financing options and exclusive promotions for all customers.
In 2019, Banco Galicia also providesimplemented theadditional debit card, positioning itself as the first bank to launch it in our country. This product allows the account holder to request a physical card for any individual above the age of 14, without having to be a co-account holder but still being able to access the same features the account holder has. The account holder has the option of investing setting withdrawal and purchase limits. The aim of this product is to reduce the use of cash and increase financial education and inclusion.
Investments
The Bank offers fixed term deposits denominated in either Peso-Argentine pesos or Dollar-denominated time deposits,U.S. dollars, with the possibility of periodic interest payments, and UVA-adjustments, adjustable by UVA with an additional interest rate. It provides preferential rates in digital channels for all different segments, and campaigns are periodically carried out to attract new investors. In 2019, the Bank extended the service hours of its digital channels from 6:00 a. m. to 10:00 p. m.
Banco Galicia also offers lower interest ratesprovides tailored product offerings to certain of its customers based on such customer’s needs and profile. Before making an investment, a survey is provided to its customers to better understandtheir income segment.risk aversion and understand the products that best suit their objectives. This survey is annually refreshed.
In 2018,
Additionally, Banco Galicia began offering provides advice on a UVA 90-day time depositface-to-face basis, throughout its entire branch network, through the investments and private banking center for customers of each segment. Within the “Campus Galicia” framework, the Bank has created the “Investments Academy” to provide training to the Bank’s officials. Likewise, it provides information on each product through its Online Banking platform, and held 8.4 % ofon the market share for time deposits less than Ps.1 million as of December 31, 2018, representing an increase of 65%.
Regarding debt and equity investments,Bank's websites, information that is constantly updated on the websites so that customers can purchase notes and stocks listed on the CNV online. Additionally, the Bank allows for the online tender of Lebac, Letes or Lecap according to the calls made by the Argentine Central Bank or the Ministry of Finance. Most of the Bank’s products, including the purchase of foreign currency, can be done through the Online Banking platform or the Galicia mobile application. With respect to capital markets products, a new investment module that will be offered on the Online Banking platform is being developed and will focus on providing customers with self-service options and an improved customer experience. In September 2018, the Bank launched its “minimum viable product” to facilitate the online purchase and sale of bonds and stocks. This product provides customers with bond and stock quotes, the ability to trade in Pesos or Dollars and a summary of a customer’s total position. Customers also have the option to purchase and sell the bonds and stocks of foreign issuers through the Online Banking platform.
In 2018, the Bank launched the “Wealth Management Project”, with the goal of positioning the Bank as an investment bank by 2022.self-manage.
Finally, the Bank simplified foreign exchange trading processes in 2018 by extending the opening and closing hours of branches. In addition, the Bank offered a preferential Dollar exchange rate through online channels to high-income segment (Private Banking, Business and SMEs, Professionals GOLD and Galicia EMINET) customers.
Foreign Trade
For the year ended December 31, 2018, Banco Galicia’s foreign trade volume transactions were equal to US$56.1 million, representing a market share of 12.1% in Argentina. Of this amount, US$11.8 million was attributable to the export and import of goods, with a market share of 12.6% in Argentina. For the year ended December 31, 2018, Banco Galicia ranked second in Argentina in terms of volume for foreign trade transactions.
Through the Bank’s Office Banking e-platform,office banking electronic platform, customers can make payments and manage their collections abroad. As part ofLikewise, the Bank’s digital initiative, the Bank began to offer import letters of credits online.
In addition, the GaliciaComex Community providesGalicia Comex department offers product and service options targetedthat are tailored to export and import operations, including providingin addition to keeping customers with relevant sectorcontinuously informed of the developments in this area.
In 2019, the volume of foreign trade transactions undertaken by Banco Galicia was equal to US$11,125 million, representing 12.0% of the Argentine foreign trade market share. Of such amount, US$3,043 million was attributable to exports and imports of goods, representing 12.8% of themarket news. The GaliciaComex Community also provides tailoredshare for such transaction. In terms of
volume, in 2019, based on the above statistics, the Bank ranked third in Argentine for volume of foreign trade transactions. Through office banking, the Bank’s customers have access to special lines of financing: leasing of imported products, financing options, including import leasing, importof imports and export financing, suretyexports, guarantees (“avales”) and stand by letters of credit.Stand By.
In addition, Galicia Seguros offers surety bondspolicies for a variety ofdifferent customer needs includingrelated to back stopforeign trade, including: temporary import or export receivables. policies, related to claims from differences in law, value or lack of documentation and policies covering damage during land transit.
Financing Granted to Companies
Banco Galicia offers short-, mid- and long-term financing to companies, provides transactional services, and undertakes foreign trade operations. In 2018, theoperations for their clients. The Bank supported more than 25,500supports companies covering a widebroad spectrum of economic activitiesand sectors, such as industrial, agriculture, services, and marketing, thereby supporting overallmarketing. Products and servicesin 2019 included the following:
- Loans with SGR (mutual guarantee associations): The Bank provided financing to micro and small business across economic
growth in Argentinasectors by providingcompaniesloans withaccess to liquidity.SRG warranties. In2018, the Bank financed 210 operations for a total of Ps.149 million.Products and services include the following:“Línea Productiva Bice Belgrano”: This is a line of products, with a special subsidy for some provinces. In 2018, the Bank granted 301 loans in an amount equal to Ps.1,000 million.Préstamo Eslabón: This is a line2019, Ps. 3,500 million of loans were grantedtofinance production chains, with maturities from 12 to 36 months and interest rates from 0% to 17%.Flex loans to finance working capital and capital expenditures, with maturities from 12 to 18 months and a three-month grace period on repayment. In 2018, the Bank granted flex loans in an amount equal to Ps.1,220 million in 3,614 operations.Loans at a subsidized interest rate of 8%, in conjunction with the Ministry of Production of Santa Fe, on loans related to capital investment and projects in Santa Fe.•Credit programs between the IADB and provinces, with credit lines to finance the development of SMEs’ long-term investment projects across all sectors.Financing of the National Institute of Yerba Mate (this sector providingInstituto Nacional de la Yerba Mate - INYMfinancing) in an amount equal to Ps.100 million.Agreement with the National FundforProduction Development to provide subsidies on overdraft lines of credit in an amount equal to Ps.2,000 million.Agreements and PayrollAgreements and Payroll are comprised of product offerings to businesses to manage payroll transactions and accounting services for their employees.In 2018, the Bank increased the number of payroll customers by 2.05% and the number of salaries by 37.1% as compared to 2017. Similar to other sectors, the Bank continued to focus on improving the customer service experience and service efficiency.
more thanThe Bank strengthened its partnerships with several businesses, including the Bar Association of the City of Buenos Aires, the Argentine Dental Association and the Argentine Neurosurgery Association. Furthermore, the Bank continued to support the educational community and provide benefits to families in121 schools that use Banco Galicia for their transactions.1,000 companies.
- Green bond: During 2019, we supported renewable energy projects by financing green bonds worth more than US$44.09 million.
Digital Transformation
Banco Galicia and Tarjeta Naranja both started a digital transformation program with the goal of improving organization and competing with rapid changes in the banking industry. These processes are independently managed in accordance with the culture and business of each company. In 2018, Banco Galicia invested approximately Ps.63 million in these programs and worked on the initial phase of implementation for its 2017-2020 strategy of the digital transformation program, which includes six focal points (digital marketing , travel optimization, data and analytics, system infrastructure, agile methodology and organization and culture and talent).
The Center of Excellence was created as a strategic area and consolidated in 2018 as a single and integrated window for improving management, with the goal of defining methodologies, developing capabilities and cultural transformation. In addition, the Bank launched a digital academy to build new digital strategies, and the Galicia Leader (Líder Galicia) model was updated to define new transformation skills.
Promotions and Benefits
Banco Galicia
Éminent Benefits
The Éminent segment, aimed at high-income customers, offers different kinds of benefits to its customers, including discounts and promotions to go to restaurants, sports and arts events, house décor and fashion, among others.
Quiero! Program
Banco Galicia’sGalicia’s Quiero! Program continuescontinued to increase its rewards catalog withoffer more than 1,500 options in different categories and 362 brands that allow customers to benefit from discounts and redemptions. Under this
New Frequent-Flyer Program
As of 2020, all customers registered with Quiero! can redeem the points accrued in Quiero! and use them to purchase flight tickets through the Smiles miles program 513,484. The alliance with Smiles Argentina, enables the Bank to continue strengthening its loyalty program, generating new options and benefits for its customers obtained benefits starting at 140 Quiero! points, thus increasing the accessibility of this program to customers of all spending backgrounds..
In 2018, the new Quiero! Platform was launched with the objective of helping customers discover the most relevant offers by applying algorithms to offer each customer the most relevant rewards based on their profile.
Tarjeta Naranja
Tarjeta Naranja
Financing of Single Purchases: Financing Purchases
Tarjetas Naranja offers financing in three orand six monthlymonth fixed installments denominatedin Pesos Argentine pesos for single purchases made with any Tarjeta Naranja cards.card.
Advance Funds Transfer
Any person can send funds to the primary or additional cardholders who can then use such funds from anywhere in Argentina (such amounts appear as a credit to the recipient’s card).
HBO GO: On-demandGO
On Demand content for Tarjeta Naranja customers, who can subscribedigitally or from Casas Naranja, and enjoy more than 3,000 high-quality movies and TV series.
Alliance with Samsung: Alliance with Samsung to promote the sale of cell phones, tablets and accessories to different customer segments and at branches in Córdoba and Buenos Aires.
Convivimos and Cima Magazines: Convivimos is a magazine published by Movieclub
Tarjeta Naranja customers can enjoy the Village Cinemas Program with significant benefits and is Argentina’s leading monthly subscription magazine. In 2018,discount.
QUIERO! Launching in Naranja
On July 2019, Tarjeta Naranja launched Convivimos Digital, which is freeannounced it would add Quiero! as its customers’ loyalty program. As of August 31, 2019, over 230,000 customers had started to print subscribers. In addition, as a result of the Tarjeta Naranja-Nevada merger, Cima was added as a print publication availableaccrue points in the northwest and northeast provinces of Argentina and Patagonia.
Naranja Store: In 2018, the Naranja Store had a “flash sale”, a promotion that resulted in the redemption of points and increased customer traffic.
Smartes: During 2018, with 2,307 participating stores, Tarjeta Naranja offered discounts of upQuiero! to 30% on Argentina’s best brands on special dates. Highlights included promotions with Aerolíneas Argentinas and GOL of up to 20% off and payment plans of six and 12 monthly installments with 0% interest redeem them for products or other benefits.
Selected Statistical Information
You should read this information in conjunction with the other information provided in this annual report, including our audited consolidated financial statements and Item 5. “Operating and Financial Review and Prospects”. We prepared this information from our financial records in conformity with IFRS.
Average Balance Sheet and Income from Interest-Earning Assets and Expenses from Interest-Bearing Liabilities
The average balances of interest-earning assets and interest-bearing liabilities, including the related interest that is receivable and payable, are calculated on a monthly basis for Banco Galicia and Tarjetas Regionales on a
consolidated basis. The average balances of interest-earning assets and interest bearinginterest-bearing liabilities are calculated on a quarterly basis for Grupo Financiero Galicia and its other non-banking subsidiaries.
Average balances have been separated between those denominated in Pesos and those denominated in Dollars. The average yield/rate is the amount of interest earned or paid during the period divided by the related average balance.
The following table shows our consolidated average balances, accrued interest and average yield for interest-earning assets and interest-bearing liabilities for the fiscal year ended December 31, 2019, December 31, 2018 and December 31, 2017.
|
| For the Fiscal Year Ended December 31, 2018 |
|
| For the Fiscal Year Ended December 31, 2017 |
| ||||||||||||||||||
|
| Total |
|
| Total |
| ||||||||||||||||||
|
| Average Balance |
|
| Accrued Interest |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Accrued Interest |
|
| Average Yield / Rate |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 52,704 |
|
|
| 15,161 |
|
|
| 28.77 |
|
|
| 41,240 |
|
|
| 6,078 |
|
|
| 14.74 |
|
Loans |
|
| 301,653 |
|
|
| 74,271 |
|
|
| 24.62 |
|
|
| 264,122 |
|
|
| 50,831 |
|
|
| 19.25 |
|
Other |
|
| 16,378 |
|
|
| 3,397 |
|
|
| 20.74 |
|
|
| 16,872 |
|
|
| 3,319 |
|
|
| 19.67 |
|
Total Interest-Earning Assets |
|
| 370,735 |
|
|
| 92,829 |
|
|
| 25.04 |
|
|
| 322,234 |
|
|
| 60,228 |
|
|
| 18.69 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 121,954 |
|
|
| 225 |
|
|
| 0.18 |
|
|
| 99,015 |
|
|
| 71 |
|
|
| 0.07 |
|
Time Deposits |
|
| 128,781 |
|
|
| 27,831 |
|
|
| 21.61 |
|
|
| 101,074 |
|
|
| 16,067 |
|
|
| 15.90 |
|
Total Interest-Bearing Deposits |
|
| 250,735 |
|
|
| 28,056 |
|
|
| 11.19 |
|
|
| 200,089 |
|
|
| 16,138 |
|
|
| 8.07 |
|
Debt Securities |
|
| 34,830 |
|
|
| 8,416 |
|
|
| 24.16 |
|
|
| 27,984 |
|
|
| 5,401 |
|
|
| 19.30 |
|
Other |
|
| 23,159 |
|
|
| 4,153 |
|
|
| 17.93 |
|
|
| 11,064 |
|
|
| 1,858 |
|
|
| 16.79 |
|
Total Interest-Bearing Liabilities |
|
| 308,724 |
|
|
| 40,625 |
|
|
| 13.16 |
|
|
| 239,137 |
|
|
| 23,397 |
|
|
| 9.78 |
|
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Spread |
|
|
|
|
|
|
|
|
|
| 11.88 |
|
|
|
|
|
|
|
|
|
|
| 8.91 |
|
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 10.96 |
|
|
|
|
|
|
|
|
|
|
| 7.26 |
|
Net Yield on Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 14.08 |
|
|
|
|
|
|
|
|
|
|
| 11.43 |
|
|
|
|
| For the Fiscal Year Ended December 31, 2019 |
|
| For the Fiscal Year Ended December 31, 2018 |
|
| For the Fiscal Year Ended December 31, 2017 |
| |||||||||||||||||||||||||||
|
| Total |
|
| Total |
|
| Total |
| |||||||||||||||||||||||||||
| Average Balance | Accrued Interest | Average Yield / Rate | Average Balance | Accrued Interest | Average Yield / Rate | Average Balance | Accrued Interest | Average Yield / Rate | ||||||||||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 130,598 |
|
|
| 66,324 |
|
|
| 50.78 |
|
|
| 81,012 |
|
|
| 23,533 |
|
|
| 29.05 |
|
|
| 63,438 |
|
|
| 10,596 |
|
|
| 16.70 |
|
Loans |
|
| 375,272 |
|
|
| 117,084 |
|
|
| 31.20 |
|
|
| 464,013 |
|
|
| 114,258 |
|
|
| 24.62 |
|
|
| 406,404 |
|
|
| 71,623 |
|
|
| 17.62 |
|
Other |
|
| 24,567 |
|
|
| 18,756 |
|
|
| 76.35 |
|
|
| 25,292 |
|
|
| 5,161 |
|
|
| 20.41 |
|
|
| 27,230 |
|
|
| 4,939 |
|
|
| 18.14 |
|
Total Interest-Earning Assets |
|
| 530,437 |
|
|
| 202,164 |
|
|
| 38.11 |
|
|
| 570,317 |
|
|
| 142,952 |
|
|
| 25.07 |
|
|
| 497,072 |
|
|
| 87,158 |
|
|
| 17.53 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 171,701 |
|
|
| 504 |
|
|
| 0.29 |
|
|
| 178,696 |
|
|
| 346 |
|
|
| 0.19 |
|
|
| 152,318 |
|
|
| 110 |
|
|
| 0.07 |
|
Time Deposits |
|
| 196,846 |
|
|
| 76,386 |
|
|
| 38.80 |
|
|
| 196,269 |
|
|
| 43,149 |
|
|
| 21.98 |
|
|
| 155,546 |
|
|
| 24,739 |
|
|
| 15.90 |
|
Total Interest-Bearing Deposits |
|
| 368,547 |
|
|
| 76,890 |
|
|
| 20.86 |
|
|
| 374,965 |
|
|
| 43,495 |
|
|
| 11.60 |
|
|
| 307,864 |
|
|
| 24,849 |
|
|
| 8.07 |
|
Debt Securities |
|
| 52,092 |
|
|
| 14,874 |
|
|
| 28.55 |
|
|
| 53,144 |
|
|
| 13,307 |
|
|
| 25.04 |
|
|
| 43,040 |
|
|
| 6,457 |
|
|
| 15.00 |
|
Other |
|
| 29,481 |
|
|
| 4,668 |
|
|
| 15.83 |
|
|
| 34,277 |
|
|
| 6,390 |
|
|
| 18.64 |
|
|
| 16,973 |
|
|
| 2,609 |
|
|
| 15.37 |
|
Total Interest-Bearing Liabilities |
|
| 450,120 |
|
|
| 96,432 |
|
|
| 21.42 |
|
|
| 462,386 |
|
|
| 63,192 |
|
|
| 13.67 |
|
|
| 367,877 |
|
|
| 33,915 |
|
|
| 9.22 |
|
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Spread |
|
|
|
|
|
|
|
|
|
| 16.69 |
|
|
|
|
|
|
|
|
|
|
| 11.40 |
|
|
|
|
|
|
|
|
|
|
| 8.32 |
|
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 18.18 |
|
|
|
|
|
|
|
|
|
|
| 11.08 |
|
|
|
|
|
|
|
|
|
|
| 6.82 |
|
Net Yield on Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 19.93 |
|
|
|
|
|
|
|
|
|
|
| 13.99 |
|
|
|
|
|
|
|
|
|
|
| 10.71 |
|
The table below reflects such information for(*) Rates include the fiscal year ended December 31, 2016, which was preparedCER/UVA adjustment.
(1) Non-accruing loans have been included in accordance with Argentine Banking GAAP.average loans.
|
| Fiscal Year Ended December 31, 2016 |
| |||||||||||||||||||||||||||||||||||
|
| Pesos |
|
| Foreign Currency |
|
| Total |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| Average |
| |||||
|
| Average |
|
| Accrued |
|
| Yield/ |
|
| Average |
|
| Accrued |
|
| Yield/ |
|
| Average |
|
| Accrued |
|
| Yield/ |
| |||||||||||
|
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
|
| Balance |
|
| Interest |
|
| Rate |
| |||||||||||
|
| (in millions of Pesos, except rates) |
| |||||||||||||||||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Government Securities |
|
| 16,110 |
|
|
| 4,646 |
|
|
| 28.84 |
|
|
| 5,410 |
|
|
| 160 |
|
|
| 2.96 |
|
|
| 21,520 |
|
|
| 4,806 |
|
|
| 22.33 |
| ||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Private Sector |
|
| 99,817 |
|
|
| 28,979 |
|
|
| 29.03 |
|
|
| 11,282 |
|
|
| 395 |
|
|
| 3.50 |
|
|
| 111,099 |
|
|
| 29,374 |
|
|
| 26.44 |
| ||
Public Sector |
|
| 1 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| 1 |
|
| - |
|
| - |
| |||||||||
Total Loans (1) |
|
| 99,818 |
|
|
| 28,979 |
|
|
| 29.03 |
|
|
| 11,282 |
|
|
| 395 |
|
|
| 3.50 |
|
|
| 111,100 |
|
|
| 29,374 |
|
|
| 26.44 |
| ||
Other |
|
| 2,555 |
|
|
| 827 |
|
|
| 32.37 |
|
|
| 111 |
|
|
| 5 |
|
|
| 4.50 |
|
|
| 2,666 |
|
|
| 832 |
|
|
| 31.21 |
| ||
Total Interest-Earning Assets |
|
| 118,483 |
|
|
| 34,452 |
|
|
| 29.08 |
|
|
| 16,803 |
|
|
| 560 |
|
|
| 3.33 |
|
|
| 135,286 |
|
|
| 35,012 |
|
|
| 25.88 |
| ||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Savings Accounts |
|
| 16,127 |
|
|
| 43 |
|
|
| 0.27 |
|
|
| 11,360 |
|
| - |
|
| - |
|
|
| 27,487 |
|
|
| 43 |
|
|
| 0.16 |
| ||||
Time Deposits |
|
| 47,953 |
|
|
| 13,057 |
|
|
| 27.23 |
|
|
| 6,032 |
|
|
| 76 |
|
|
| 1.26 |
|
|
| 53,985 |
|
|
| 13,133 |
|
|
| 24.33 |
| ||
Total Interest-Bearing Deposits |
|
| 64,080 |
|
|
| 13,100 |
|
|
| 20.44 |
|
|
| 17,392 |
|
|
| 76 |
|
|
| 0.44 |
|
|
| 81,472 |
|
|
| 13,176 |
|
|
| 16.17 |
| ||
Debt Securities |
|
| 6,125 |
|
|
| 1,875 |
|
|
| 30.61 |
|
|
| 9,425 |
|
|
| 1,023 |
|
|
| 10.85 |
|
|
| 15,550 |
|
|
| 2,898 |
|
|
| 18.64 |
| ||
Other |
|
| 2,721 |
|
|
| 940 |
|
|
| 34.55 |
|
|
| 1,576 |
|
|
| 63 |
|
|
| 4.00 |
|
|
| 4,297 |
|
|
| 1,003 |
|
|
| 23.34 |
| ||
Total Interest-Bearing Liabilities |
|
| 72,926 |
|
|
| 15,915 |
|
|
| 21.82 |
|
|
| 28,393 |
|
|
| 1,162 |
|
|
| 4.09 |
|
|
| 101,319 |
|
|
| 17,077 |
|
|
| 16.85 |
| ||
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest Rate Spread |
|
|
|
|
|
|
|
|
|
| 7.26 |
|
|
|
|
|
|
|
|
|
|
| (0.76 | ) |
|
|
|
|
|
|
|
|
|
| 9.03 |
| ||
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 13.43 |
|
|
|
|
|
|
|
|
|
|
| 6.92 |
|
|
|
|
|
|
|
|
|
|
| 12.62 |
| ||
Net Yield on Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
| 15.65 |
|
|
|
|
|
|
|
|
|
|
| (3.58 | ) |
|
|
|
|
|
|
|
|
|
| 13.26 |
| ||
|
|
Changes in Net Interest Income-Volume and Rate Analysis
The following table allocates, by currency of the underlying asset or liability, changes in our consolidated interest income and interest expenses between changes in the average volume of interest-earning assets and interest-bearing liabilities and changes in their respective average yield/rate for (i) the fiscal year ended December 31, 2019 compared with the fiscal year ended December 31, 2018 and (ii) the fiscal year ended December 31, 2018, compared with the fiscal year ended December 31, 2017. Differences related to both rate and volume are allocated proportionally to the rate variance and the volume variance, respectively.
|
| Fiscal Year Ended December 31, 2019 / Fiscal Year Ended December 31, 2018 |
|
| Fiscal Year Ended December 31, 2018 / Fiscal Year Ended December 31, 2017 |
| ||||||||||||||||||
|
| Increase (Decrease) due to changes in |
|
| Increase (Decrease) due to changes in |
| ||||||||||||||||||
| Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||||||||||||||
| (in millions of Pesos) | (in millions of Pesos) | |||||||||||||||||||||||
Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 22,111 |
|
|
| 20,680 |
|
|
| 42,791 |
|
|
| 2,569 |
|
|
| 10,368 |
|
|
| 12,936 |
|
Loans(1) |
|
| (312 | ) |
|
| 3,138 |
|
|
| 2,826 |
|
|
| 3,574 |
|
|
| 39,061 |
|
|
| 42,635 |
|
Other |
|
| 5 |
|
|
| 13,590 |
|
|
| 13,595 |
|
|
| (175 | ) |
|
| 397 |
|
|
| 223 |
|
Total Interest-Earning Assets |
|
| 21,804 |
|
|
| 37,408 |
|
|
| 59,212 |
|
|
| 5,968 |
|
|
| 49,826 |
|
|
| 55,794 |
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Account |
|
| (58 | ) |
|
| 216 |
|
|
| 158 |
|
|
| (13 | ) |
|
| 249 |
|
|
| 236 |
|
Time Deposits |
|
| 2,899 |
|
|
| 30,338 |
|
|
| 33,237 |
|
|
| 3,454 |
|
|
| 14,956 |
|
|
| 18,410 |
|
Debt Securities |
|
| (753 | ) |
|
| 2,320 |
|
|
| 1,567 |
|
|
| 1,626 |
|
|
| 5,224 |
|
|
| 6,850 |
|
Other Liabilities |
|
| (2,025 | ) |
|
| 303 |
|
|
| (1,722 | ) |
|
| 1,117 |
|
|
| 2,664 |
|
|
| 3,781 |
|
Total Interest-Earning Assets |
|
| 63 |
|
|
| 33,177 |
|
|
| 33,240 |
|
|
| 6,184 |
|
|
| 23,093 |
|
|
| 29,277 |
|
(1)Non-accruing loans have been included in average loans.
|
| Fiscal Year Ended December 31, 2018 / Fiscal Year Ended December 31, 2017 |
| |||||||||
|
| Increase (Decrease) due to changes in |
| |||||||||
|
| Volume |
|
| Rate |
|
| Net Change |
| |||
|
| (in millions of Pesos) |
| |||||||||
Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
| 5,094 |
|
|
| 3,988 |
|
|
| 9,082 |
|
Loans(1) |
|
| 2,464 |
|
|
| 20,976 |
|
|
| 23,440 |
|
Other |
|
| 5 |
|
|
| 74 |
|
|
| 79 |
|
Total Interest-Earning Assets |
|
| 7,563 |
|
|
| 25,038 |
|
|
| 32,601 |
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Savings Account |
|
| (8 | ) |
|
| 162 |
|
|
| 154 |
|
Time Deposits |
|
| 2,211 |
|
|
| 9,553 |
|
|
| 11,764 |
|
Notes |
|
| 1,265 |
|
|
| 1,750 |
|
|
| 3,015 |
|
Other Liabilities |
|
| 724 |
|
|
| 1,571 |
|
|
| 2,295 |
|
Total Interest-Earning Assets |
|
| 4,192 |
|
|
| 13,036 |
|
|
| 17,228 |
|
|
|
The increase of Ps.32,601Ps.59,212 million in interest income for the fiscal year ended December 31, 2018,2019, as compared to the previous year, is primarily attributable to a Ps.7,563Ps.21,804 million increase in the volume of interest-earning assets, together with an increase of Ps.25,038Ps.37,558 million in interest income due to an increase in interest rates.
In particular, Ps.23,440Ps.42,791 million of the increase was due to an increase in interest income from loans.debt securities. The average volume of loansdebt securities amounted to Ps.301,653Ps.130,598 million for fiscal year 2018,2019, as compared to Ps.264,122Ps.81,012 million for the previous fiscal year. This increase was due to Ps.20,976Ps.42,791 million increase in interest income from Loans,debt securities, which resulted from aan increase in interest rates earned from loansdebt securities due to a 5372,173 basis point (“bps”) increase in the average interest rate for loans, from 19.25%29.05% in 20172018 to 24.62%50.78% in 2018.2019.
The Ps.9,082Ps.13,595 million increase in interest from debt securitiesother assets was due to an increase in volume equal to Ps.5,094Ps.5 million, and an increase in interest rates (accounting for Ps.3,988Ps.13,590 million), mainly as a result of an increase in the average rate earned on government securities.other assets. This increase was mainly as consequence of (i) an increase in the average volume and rate on repurchase transaction with the Central Bank, and (ii) a higher result from change in valuation criteria of the Bank’s interest in Prisma Medios de Pago S.A.
Interest income from loans increased Ps.2,826 million from Ps.114,258 for the fiscal year ended December 31, 2018 to Ps.117,084 for the fiscal year ended December 31, 2019. This increase was due to a decrease in volume equal to Ps.312 million, and an increase in interest rates equal to Ps.3,138 million.
In terms of interest expenses, the Ps.17,228Ps.32,240 million increase for the fiscal year ended December 31, 2018,2019, as compared to the fiscal year ended December 31, 2017,2018, is primarily a result of aan increase in the interest rate payable on time deposits of Ps.11,764Ps.30,338 million (which increased from 15.90%21.98% in 20172018 to 21.61%38.80% in 2018)2019).
The table below reflects such information for the fiscal years ended December 31, 2016 and 2015, which was prepared in accordance with Argentine Banking GAAP.
Fiscal Year 2017/ Fiscal Year 2016, Increase (Decrease) due to changes in |
|
| Fiscal Year 2016/ Fiscal Year 2015, Increase (Decrease) due to changes in |
| |||||||||||||||||||
| Volume |
|
| Rate |
|
| Net Change |
|
| Volume |
|
| Rate |
|
| Net Change |
| ||||||
| (in millions of Pesos) |
| |||||||||||||||||||||
Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 567 |
|
|
| (380 | ) |
|
| 187 |
|
|
| 1,255 |
|
|
| 116 |
|
|
| 1,371 |
|
Foreign Currency |
| (26 | ) |
|
| 86 |
|
|
| 60 |
|
|
| (313 | ) |
|
| 230 |
|
|
| (83 | ) |
Total |
| 541 |
|
|
| (294 | ) |
|
| 247 |
|
|
| 942 |
|
|
| 346 |
|
|
| 1,288 |
|
Loans(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 7,980 |
|
|
| (1,787 | ) |
|
| 6,193 |
|
|
| 7,397 |
|
|
| 1,409 |
|
|
| 8,806 |
|
Foreign Currency |
| 558 |
|
|
| (37 | ) |
|
| 521 |
|
|
| 261 |
|
|
| (21 | ) |
|
| 240 |
|
Total |
| 8,538 |
|
|
| (1,824 | ) |
|
| 6,714 |
|
|
| 7,658 |
|
|
| 1,388 |
|
|
| 9,046 |
|
Public Sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (4 | ) |
Foreign Currency | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| ||||||
Total |
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| (2 | ) |
|
| (2 | ) |
|
| (4 | ) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 530 |
|
|
| (111 | ) |
|
| 419 |
|
|
| 82 |
|
|
| 157 |
|
|
| 239 |
|
Foreign Currency |
| 8 |
|
| - |
|
|
| 8 |
|
| - |
|
| - |
|
| - |
| ||||
Total |
| 538 |
|
|
| (111 | ) |
|
| 427 |
|
|
| 82 |
|
|
| 157 |
|
|
| 239 |
|
Total Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 9,078 |
|
|
| (2,277 | ) |
|
| 6,801 |
|
|
| 8,732 |
|
|
| 1,680 |
|
|
| 10,412 |
|
Foreign Currency |
| 540 |
|
|
| 49 |
|
|
| 589 |
|
|
| (52 | ) |
|
| 209 |
|
|
| 157 |
|
Total |
| 9,618 |
|
|
| (2,228 | ) |
|
| 7,390 |
|
|
| 8,680 |
|
|
| 1,889 |
|
|
| 10,569 |
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Account |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 14 |
|
|
| (5 | ) |
|
| 9 |
|
|
| 11 |
|
|
| 4 |
|
|
| 15 |
|
Foreign Currency | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| ||||||
Total |
| 14 |
|
|
| (5 | ) |
|
| 9 |
|
|
| 11 |
|
|
| 4 |
|
|
| 15 |
|
Time Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,199 |
|
|
| (3,194 | ) |
|
| (1,995 | ) |
|
| 3,061 |
|
|
| 1,470 |
|
|
| 4,531 |
|
Foreign Currency |
| 19 |
|
|
| (38 | ) |
|
| (19 | ) |
|
| 24 |
|
|
| (8 | ) |
|
| 16 |
|
Total |
| 1,218 |
|
|
| (3,232 | ) |
|
| (2,014 | ) |
|
| 3,085 |
|
|
| 1,462 |
|
|
| 4,547 |
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,723 |
|
|
| (275 | ) |
|
| 1,448 |
|
|
| 549 |
|
|
| 223 |
|
|
| 772 |
|
Foreign Currency |
| (350 | ) |
|
| (170 | ) |
|
| (520 | ) |
|
| 341 |
|
|
| (61 | ) |
|
| 280 |
|
Total |
| 1,373 |
|
|
| (445 | ) |
|
| 928 |
|
|
| 890 |
|
|
| 162 |
|
|
| 1,052 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 367 |
|
|
| (143 | ) |
|
| 224 |
|
|
| 423 |
|
|
| 21 |
|
|
| 444 |
|
Foreign Currency |
| 61 |
|
|
| (5 | ) |
|
| 56 |
|
|
| 15 |
|
|
| 5 |
|
|
| 20 |
|
Total |
| 428 |
|
|
| (148 | ) |
|
| 280 |
|
|
| 438 |
|
|
| 26 |
|
|
| 464 |
|
Total Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 3,303 |
|
|
| (3,617 | ) |
|
| (314 | ) |
|
| 4,044 |
|
|
| 1,718 |
|
|
| 5,762 |
|
Foreign Currency |
| (270 | ) |
|
| (213 | ) |
|
| (483 | ) |
|
| 380 |
|
|
| (64 | ) |
|
| 316 |
|
Total |
| 3,033 |
|
|
| (3,830 | ) |
|
| (797 | ) |
|
| 4,424 |
|
|
| 1,654 |
|
|
| 6,078 |
|
(1) Non-accruing loans have been included in average loans.
The following table shows our holdings of debt and equity securities at the balance sheet dates stated below. Our holdings of government securities represent mainly holdings of Banco Galicia.
|
| As of December 31, |
|
| As of January 1, |
|
| As of December 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| 2019 | 2018 | 2017 | ||||||||||||
|
| (in millions of Pesos) |
| (in millions of Pesos) | ||||||||||||||||||||
Debt Securities at FV through profit or loss |
|
| 75,935 |
|
|
| 42,748 |
|
|
| 28,818 |
|
|
| 65,690 |
|
|
| 116,813 |
|
|
| 65,760 |
|
Argentine Government Securities |
|
| 4,700 |
|
|
| 13,923 |
|
|
| 9,660 |
|
|
| 6,700 |
| 7,230 |
| 21,418 |
| ||||
Government Bonds |
|
| 1,485 |
|
|
| 1,253 |
|
|
| 6,410 |
|
|
| 347 |
| 2,285 |
| 1,927 |
| ||||
Provincial Bonds |
|
| 984 |
|
|
| 3,690 |
|
|
| 3,110 |
|
|
| - |
| 1,514 |
| 5,676 |
| ||||
Autonomous City of Buenos Aires Bonds |
|
| 42 |
|
|
| 1,132 |
|
|
| 28 |
| ||||||||||||
City of Buenos Aires Bonds |
|
| 120 |
| 65 |
| 1,741 |
| ||||||||||||||||
Treasury Bills |
|
| 2,189 |
|
|
| 7,848 |
|
|
| 112 |
|
|
| 6,233 |
| 3,366 |
| 12,074 |
| ||||
Argentine Central Bank’s Bill and Bonds |
|
| 70,098 |
|
|
| 26,368 |
|
|
| 16,158 |
| ||||||||||||
Argentine Central Bank´s Bill |
|
| 58,141 |
| 107,833 |
| 40,562 |
| ||||||||||||||||
Lebacs |
|
| — |
|
|
| 26,368 |
|
|
| 16,158 |
|
|
| — |
| — |
| 40,562 |
| ||||
Leliq |
|
| 70,098 |
|
|
| — |
|
|
| — |
|
|
| 58,141 |
| 107,833 |
| — |
| ||||
Private Securities |
|
| 1,137 |
|
|
| 2,457 |
|
|
| 3,000 |
| ||||||||||||
Corporate Securities |
|
| 849 |
| 1,750 |
| 3,780 |
| ||||||||||||||||
Debt Securities |
|
| 689 |
|
|
| 1,884 |
|
|
| 2,445 |
|
|
| 755 |
| 1,060 |
| 2,899 |
| ||||
Debt Securities of Financial Trust |
|
| 102 |
|
|
| 361 |
|
|
| 140 |
|
|
| 94 |
| 157 |
| 555 |
| ||||
Participation Certificates in Financial Trust |
|
| 346 |
|
|
| 212 |
|
|
| 415 |
|
|
| - |
| 533 |
| 326 |
| ||||
Other Debt Securities |
|
| 14,424 |
|
|
| 4,183 |
|
|
| 3,184 |
|
|
| 19,020 |
| 22,189 |
| 6,434 |
| ||||
Measured at FV through OCI |
|
| 9,112 |
|
|
| 142 |
|
|
| 930 |
|
|
| 15,917 |
| 14,017 |
| 219 |
| ||||
Government Securities |
|
| 9,112 |
|
|
| 142 |
|
|
| 930 |
|
|
| 15,917 |
| 14,017 |
| 219 |
| ||||
Measured at Amortized Cost |
|
| 5,312 |
|
|
| 4,041 |
|
|
| 2,254 |
|
|
| 3,103 |
| 8,172 |
| 6,215 |
| ||||
Argentine Government Securities |
|
| 3 |
|
|
| 35 |
|
|
| 6 |
|
|
| 2 |
| 5 |
| 53 |
| ||||
Treasury Bills |
|
| 2 |
|
|
| 76 |
|
|
| — |
|
|
| - |
| 3 |
| 116 |
| ||||
Argentine Central Bank's Bill and Bonds |
|
| 219 |
|
|
| 166 |
|
|
| 50 |
|
|
| 2,335 |
| 337 |
| 256 |
| ||||
Private Securities |
|
| 5,088 |
|
|
| 3,764 |
|
|
| 2,198 |
| ||||||||||||
Corporate Securities |
|
| 795 |
| 7,827 |
| 5,790 |
| ||||||||||||||||
Allowance |
|
| (29 | ) |
| — |
| — |
| |||||||||||||||
Investments in Equity Instruments |
|
| 161 |
|
|
| 112 |
|
|
| 187 |
|
|
| 4,554 |
| 248 |
| 172 |
| ||||
Domestic |
|
| 133 |
|
|
| 81 |
|
|
| 152 |
|
|
| 4,512 |
| 205 |
| 125 |
| ||||
Internacional |
|
| 28 |
|
|
| 31 |
|
|
| 35 |
|
|
| 42 |
|
| 43 |
|
| 47 |
| ||
Total Debt and Equity Securities |
|
| 90,520 |
|
|
| 47,043 |
|
|
| 32,189 |
|
|
| 89,264 |
|
|
| 139,250 |
|
|
| 72,366 |
|
As of December 31, 2018,2019, the growthdecrease in our debt and equity securities was mainly a result of an increasea decrease in the volume of LeliqsGovernment Bonds issued by the Argentine Central Bank and the corresponding purchase of the same. Our government securities issued by the Argentine Central Bank increased Ps.43,730decreased Ps.49,692 million from Ps.26,368Ps.107,833 million as of December 31, 20172018 to Ps.70,098Ps.58,141 million as of December 31, 2018.2019.
The amount of Argentine government securities recorded at fair value as of December 31, 20182019 for Ps.4,700Ps.6,700 million corresponded to securities issued by the provinces of Neuquén (for Ps.266 million), Buenos Aires (for Ps.534 million),City of Buenos Aires (for Ps.42Ps.120 million), Mendoza (for Ps.9 million) and Río Negro (for Ps.174 million); Argentine bonds (for Ps.1,485Ps.347 million); and Treasury Bills (for Ps.2,189Ps.6,233 million).
At
As of December 31, 2019, the holding of public securities denominated in Dollars was composed mainly of Government Bonds (for Ps.4,982 million), recorded at fair value, and of Government Bonds (for Ps.11 million) and U.S. Treasury Bonds (for Ps.3 million) recorded at cost plus yield.
As of December 31, 2018, the amount of Argentine government securities, recorded at fair value for Ps.7,230 million, corresponded to our holdings of debt securities mainly issued by the provinces of Buenos Aires (for Ps.822 million), Neuquén (for Ps.410 million), Río Negro (for Ps.268 million), Mendoza (for Ps.14 million) and City of Buenos Aires (for Ps.65 million); and Government Bonds (for Ps.2,285 million) and treasury bills (for Ps.3,366 million).
As of December 31, 2018, the holding of public securities denominated in Dollars was composed mainly of Argentine Treasury Bills (Letes) (for Ps.283 million) and Government Bonds (for Ps.3,118Ps.26 million), recorded at fair value and Argentine Treasury Bills (Letes) (for Ps.5 million) U.S. Treasury Bonds due in 2022 (for Ps.2 million), recorded at cost plus yield.
As of December 31, 2017, the amount of Argentine government securities, recorded at fair value for Ps.13,923 million, corresponded to our holdings of debt securities mainly issued by the provinces of Buenos Aires (for Ps.1,812 million), Neuquén (for Ps.1,291 million), Río Negro (for Ps.284 million), Córdoba (for Ps.24 million), Entre Ríos (for Ps.279 million) and City of Buenos Aires (for Ps.42 million); and Government Bonds (for Ps.1,253 million) and treasury bills (for Ps.7,848 million).
At December 31, 2017, the holding of public securities denominated in Dollars was composed mainly of Argentine Bonds (for Ps.433 million), recorded at fair value and Argentine Treasury Bills (Letes) (for Ps.7,836 million) and City of Buenos Aires government securities (for Ps.35 million), recorded at fair value.
All local government securities, except for the Lebac and Leliq, which are issued by the Argentine Central Bank, were issued by the Argentine government.
The table below shows such information for the fiscal year ended December 31, 2016, which was prepared in accordance with Argentine Banking GAAP.
| |||||
| |||||
| |||||
| |||||
| |||||
|
| ||||
|
| ||||
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| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
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| ||||
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| ||||
| |||||
|
| ||||
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| ||||
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| ||||
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| ||||
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| ||||
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| ||||
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| ||||
|
| ||||
| |||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
Remaining Maturity and Weighted-Average Yield
The following table analyzes the remaining maturity and weighted-average yield of our holdings of debt securities at fair value through profit or loss as of December 31, 2018.2019. Our government securities portfolio yields do not contain any tax equivalency adjustments.
|
| Fiscal Year Ended December 31, 2018 |
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
| Maturing witihin 1 year |
|
| Maturing after 1 year but within 5 years |
|
| Maturing after 5 years but within 10 years |
|
| Maturing after 10 years |
|
| ||||||||||||||||||||
|
| Total Book Value |
|
| Book Value |
|
| Yield (1) |
|
| Book Value |
|
| Yield |
|
| Book Value |
|
| Yield (1) |
|
| Book Value |
|
| Yield (1) |
|
| |||||||||
|
| (in millions of Pesos, except percentages) |
|
| |||||||||||||||||||||||||||||||||
Debt Securities at FV through Profit or Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Argentine Government Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| 711 |
|
|
| 234 |
|
|
| 26.43 |
| % |
| 412 |
|
|
| 27.95 |
| % |
| 43 |
|
|
| 11.08 |
|
|
| 22 |
|
|
| 11.08 |
| % |
Provincial Bonds |
|
| 984 |
|
|
| 32 |
|
|
| 0.28 |
| % |
| 504 |
|
|
| 22.58 |
| % |
| 448 |
|
|
| — |
|
|
| — |
|
|
| — |
| % |
City of Buenos Aires Bonds |
|
| 42 |
|
|
| - |
|
|
| - |
| % |
| 5 |
|
|
| 82.19 |
| % |
| 37 |
|
|
| 73.57 |
| % |
| - |
|
|
| — |
| % |
Treasury Bills |
|
| 1,907 |
|
|
| 1,888 |
|
|
| 32.77 |
| % |
| 19 |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
Foreign Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| 774 |
|
|
| 416 |
|
|
| 1.10 |
| % |
| 336 |
|
|
| 13.92 |
| % |
| 1 |
|
|
| 11.41 |
| % |
| 21 |
|
|
| 12.20 |
| % |
Treasury Bills |
|
| 282 |
|
|
| 282 |
|
|
| 2.89 |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
Argentine Central Bank’s Bill and Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leliq |
|
| 70,098 |
|
|
| 70,098 |
|
|
| 57.56 |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Private Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
| 564 |
|
|
| 189 |
|
|
| 34.88 |
| % |
| 375 |
|
|
| 53.70 |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Debt Securities of Financial Trust |
|
| 102 |
|
|
| 102 |
|
|
| - |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Participation Certificates in Financial Trust |
|
| 69 |
|
|
| 22 |
|
|
| 29.00 |
| % |
| 47 |
|
|
| 38.56 |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Foreign Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
| 125 |
|
|
| 16 |
|
|
| 6.12 |
| % |
| 60 |
|
|
| 7.66 |
| % |
| 49 |
|
|
| 7.33 |
| % |
| — |
|
|
| 7.33 |
| % |
Debt Securities of Financial Trust |
|
| - |
|
|
| - |
|
|
| - |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Participation Certificates in Financial Trust |
|
| 277 |
|
|
| 226 |
|
|
| 6.57 |
| % |
| 25 |
|
|
| 3.00 |
| % |
| 26 |
|
|
| 5.00 |
| % |
| — |
|
|
| 5.00 |
| % |
Debt Securities at FV through Profit or Loss |
|
| 75,935 |
|
|
| 73,505 |
|
|
|
|
|
|
| 1,783 |
|
|
|
|
|
|
| 604 |
|
|
|
|
|
|
| 43 |
|
|
|
|
|
|
|
| Fiscal Year Ended December 31, 2019 |
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
| Maturing within 1 year |
|
| Maturing after 1 year but within 5 years |
|
| Maturing after 5 years but within 10 years |
|
| Maturing after 10 years |
|
| ||||||||||||||||||||
| Total Book Value | Book Value | Yield (1) | Book Value | Yield | Book Value | Yield (1) | Book Value | Yield (1) | |||||||||||||||||||||||||||||
| (in millions of Pesos, except percentages) | |||||||||||||||||||||||||||||||||||||
Debt Securities at FV through Profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Argentine Government Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| 108 |
|
|
| 38 |
|
|
| 277.27 |
| % |
| 62 |
|
|
| 49.64 |
| % |
| — |
|
|
| — |
|
|
| 8 |
|
|
| 11.70 |
| % |
Provincial Bonds |
|
| - |
|
|
| - |
|
|
| - |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| % |
City of Buenos Aires Bonds |
|
| 120 |
|
|
| - |
|
|
| - |
| % |
| 116 |
|
|
| 66.85 |
| % |
| 4 |
|
|
| 64.69 |
| % |
| - |
|
|
| — |
| % |
Treasury Bills |
|
| 1,049 |
|
|
| 1,049 |
|
|
| 50.00 |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
Foreign Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Bonds |
|
| 239 |
|
|
| 116 |
|
|
| 175.63 |
| % |
| 123 |
|
|
| 65.56 |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
Treasury Bills |
|
| 5,184 |
|
|
| 5,184 |
|
|
| 4.25 |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
| - |
|
|
| — |
| % |
Argentine Central Bank´s Bill and Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leliq |
|
| 58,141 |
|
|
| 58,141 |
|
|
| 52.30 |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Corporate Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
| 657 |
|
|
| 653 |
|
|
| 45.63 |
| % |
| 4 |
|
|
| 51.71 |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Debt Securities of Financial Trust |
|
| 52 |
|
|
| - |
|
|
| 47.95 |
| % |
| 52 |
|
|
| 51.00 |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Participation Certificates in Financial Trust |
|
| - |
|
|
| - |
|
|
| - |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Foreign Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
| 98 |
|
|
| 14 |
|
|
| 8.08 |
| % |
| 79 |
|
|
| 6.52 |
| % |
| 5 |
|
|
| 6.75 |
| % |
| — |
|
|
| — |
| % |
Debt Securities of Financial Trust |
|
| 42 |
|
|
| 14 |
|
|
| - |
| % |
| 28 |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Participation Certificates in Financial Trust |
|
| - |
|
|
| - |
|
|
| - |
| % |
| - |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
| — |
|
|
| — |
| % |
Debt Securities at FV through Profit or loss |
|
| 65,690 |
|
|
| 65,209 |
|
|
|
|
|
|
| 464 |
|
|
|
|
|
|
| 9 |
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
(1) Effective yield based on December 31, 2019 quoted market values.
Loan and Other Financing Portfolio
Our total loans and other financing reflect Banco Galicia’s the Regional Credit Card Companies’and Tarjetas Regionales’ loan and other financing portfolios including past due principal amounts. Personal loans and credit-card loans are typically loans to individuals granted by Banco Galicia or the Regional Credit Card Companies.Tarjetas Regionales. Most of the Regional Credit Card Companies’Tarjetas Regionales’ loans are included under “credit card loans”. Also, certain amounts related to advances, promissory notes, mortgage loans and pledge loans are extended to individuals. However, advances and promissory notes mostly represent loans to companies. The following table analyzes our consolidated loan and other financing activities portfolio.
|
| As of December 31, |
|
| As of January 1, |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
| |||||||||
Principal and Interest |
|
|
|
|
|
|
|
|
|
|
|
|
Non- Financial Public Sector |
| 12 |
|
| 9 |
|
| 26 |
| |||
Financial Institutions |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 7,942 |
|
|
| 6,938 |
|
|
| 5,107 |
|
Other financing |
|
| 1 |
|
|
| 4 |
|
|
| 5 |
|
Total Financial Institutions |
|
| 7,943 |
|
|
| 6,942 |
|
|
| 5,112 |
|
Non-Financial Private Sector and Residents Abroad (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 283,544 |
|
|
| 280,870 |
|
|
| 244,082 |
|
Overdrafts |
|
| 14,431 |
|
|
| 16,681 |
|
|
| 18,502 |
|
Promissory Notes |
|
| 36,020 |
|
|
| 52,455 |
|
|
| 46,613 |
|
Mortgage Loans |
|
| 11,793 |
|
|
| 8,435 |
|
|
| 4,014 |
|
Collateralized Loans |
|
| 998 |
|
|
| 1,591 |
|
|
| 1,249 |
|
Personal Loans |
|
| 29,145 |
|
|
| 34,632 |
|
|
| 24,365 |
|
Credit Card Loans |
|
| 113,395 |
|
|
| 125,176 |
|
|
| 129,153 |
|
Placements in Banks Abroad |
|
| 5,301 |
|
|
| 427 |
|
|
| 2,266 |
|
Other Loans |
|
| 69,493 |
|
|
| 44,536 |
|
|
| 21,047 |
|
Accrued Interest, Adjustment and Quotation Differences Receivable |
|
| 5,388 |
|
|
| 335 |
|
|
| (703 | ) |
Documented Interest |
|
| (2,420 | ) |
|
| (3,398 | ) |
|
| (2,424 | ) |
Financial Leases |
|
| 2,198 |
|
|
| 2,476 |
|
|
| 1,732 |
|
Other Financing |
|
| 4,670 |
|
|
| 3,293 |
|
|
| 3,438 |
|
Total Non-Financial Private Sector and Residents Abroad |
|
| 290,412 |
|
|
| 286,639 |
|
|
| 249,252 |
|
Total Gross Loans and Other Financing |
|
| 298,367 |
|
|
| 293,590 |
|
|
| 254,390 |
|
Allowance for Loan and Other Financing Losses |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| (15,550 | ) |
|
| (9,129 | ) |
|
| (8,577 | ) |
Financial Leases |
|
| (29 | ) |
|
| (33 | ) |
|
| (26 | ) |
Others Financing |
|
| (78 | ) |
|
| (73 | ) |
|
| (84 | ) |
Total Allowance |
|
| (15,657 | ) |
|
| (9,235 | ) |
|
| (8,687 | ) |
Total Loans and Other Financing |
|
| 282,710 |
|
|
| 284,355 |
|
|
| 245,703 |
|
Overdrafts:
|
| As of December 31, |
|
| |||||||||
| 2019 | 2018 | 2017 | |||||||||||
| (in millions of Pesos) |
|
| ||||||||||
| Principal and Interest | |||||||||||||
Non- Financial Public Sector |
| 7 |
|
| 18 |
|
| 13 |
|
| |||
Financial Institutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 10,796 |
|
|
| 12,218 |
|
|
| 10,674 |
|
|
Other financing |
|
| 22 |
|
|
| 1 |
|
|
| 6 |
|
|
Total Financial Institutions |
|
| 10,818 |
|
|
| 12,219 |
|
|
| 10,680 |
|
|
Non-Financial Private Sector and Residents Abroad (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 362,076 |
|
|
| 436,182 |
|
|
| 432,070 |
|
|
Advances |
|
| 15,892 |
|
|
| 22,199 |
|
|
| 25,661 |
|
|
Overdrafts |
|
| 75,080 |
|
|
| 55,411 |
|
|
| 80,693 |
|
|
Mortgage Loans |
|
| 15,053 |
|
|
| 18,141 |
|
|
| 12,976 |
|
|
Pledge Loans |
|
| 3,209 |
|
|
| 1,535 |
|
|
| 2,448 |
|
|
Personal Loans |
|
| 27,646 |
|
|
| 44,834 |
|
|
| 53,276 |
|
|
Credit Card Loans |
|
| 149,460 |
|
|
| 174,439 |
|
|
| 192,561 |
|
|
Placements in Banks Abroad |
|
| 7,875 |
|
|
| 8,155 |
|
|
| 656 |
|
|
Other Loans |
|
| 53,908 |
|
|
| 106,902 |
|
|
| 68,511 |
|
|
Accrued Interest, Adjustment and Quotation Differences Receivable |
|
| 15,245 |
|
|
| 8,289 |
|
|
| 516 |
|
|
Documented Interest |
|
| (1,292 | ) |
|
| (3,723 | ) |
|
| (5,228 | ) |
|
Financial Leases |
|
| 2,225 |
|
|
| 3,381 |
|
|
| 3,809 |
|
|
Other Financing |
|
| 9,277 |
|
|
| 7,186 |
|
|
| 5,065 |
|
|
Total Non-Financial Private Sector and Residents Abroad |
|
| 373,578 |
|
|
| 446,749 |
|
|
| 440,944 |
|
|
Total Gross Loans and Other Financing |
|
| 384,403 |
|
|
| 458,986 |
|
|
| 451,637 |
|
|
Allowance for Loan and Other Financing Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| (25,629 | ) |
|
| (23,921 | ) |
|
| (14,043 | ) |
|
Financial Leases |
|
| (44 | ) |
|
| (45 | ) |
|
| (51 | ) |
|
Others Financing |
|
| (171 | ) |
|
| (120 | ) |
|
| (113 | ) |
|
Total Allowance |
|
| (25,844 | ) |
|
| (24,086 | ) |
|
| (14,207 | ) |
|
Total Loans and Other Financing |
|
| 358,559 |
|
|
| 434,900 |
|
|
| 437,430 |
|
|
(1) Categories of loans include:
- Advances: short-term obligations drawn on by customers through overdrafts.
- Overdrafts: endorsed promissory notes, notes and other promises to pay signed by one borrower or group of borrowers and factored loans.
- Mortgage Loans: loans granted to purchase or improve real estate and collateralized by such real estate and commercial loans secured by a real estate mortgage.
- Pledge Loans: loans secured by collateral (such as cars or machinery) other than real estate, where such collateral is an integral part of the loan documents.
- Personal Loans: loans to individuals.
- Credit-Card Loans: loans granted through credit cards to credit card holders.
- Placements in Banks Abroad: short-term loans to banks abroad.
- Other Loans: loans not included in other categories.
- Documented Interest: discount on notes and bills.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019, Grupo Galicia’s loan and other financing portfolio before allowances for loan and other financing losses amounted to Ps.384,403 million, a 16% decrease as compared to the year ended December 31, 2018.
For the fiscal year ended December 31, 2018, Grupo Galicia’s loan and other financing portfolio before allowances for loan and other financing losses amounted to Ps.298,367Ps.458,986 million, a 2% increase as compared to the year ended December 31, 2017.year-over-year.
For the fiscal year ended December 31, 2017, Grupo Galicia’s loan and other financing portfolio before allowances for loan and other financing losses amounted to Ps.293,590 million, a 15% increase year-over-year.
The table below showsshowing such information for the fiscal years ended December 31, 2016 and 2015 is not adjusted for inflation, and 2014, which was prepared in accordance with Argentine Banking GAAP.
| As of December 31, | As of December 31, |
| ||||||||||||||||||||
|
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
|
|
| 2016 |
|
| 2015 |
| |||||
| (in millions of Pesos) | (in millions of Pesos) |
| ||||||||||||||||||||
Principal and Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Financial Public Sector |
|
| - |
|
| - |
|
| - |
|
|
|
| - |
|
| - |
| |||||
Local Financial Sector |
|
|
| 2,098 |
|
|
| 762 |
|
|
| 193 |
|
|
|
|
| 2,098 |
|
|
| 762 |
|
Non-Financial Private Sector and Residents Abroad (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Advances |
|
|
| 10,063 |
|
|
| 8,549 |
|
|
| 3,987 |
|
|
|
|
| 10,063 |
|
|
| 8,549 |
|
Promissory Notes |
|
|
| 25,298 |
|
|
| 22,752 |
|
|
| 16,304 |
|
|
|
|
| 25,298 |
|
|
| 22,752 |
|
Mortgage Loans |
|
|
| 2,178 |
|
|
| 2,099 |
|
|
| 1,661 |
|
|
|
|
| 2,178 |
|
|
| 2,099 |
|
Pledge Loans |
|
|
| 678 |
|
|
| 487 |
|
|
| 500 |
|
|
|
|
| 678 |
|
|
| 487 |
|
Personal Loans |
|
|
| 15,312 |
|
|
| 9,259 |
|
|
| 6,996 |
|
|
|
|
| 15,312 |
|
|
| 9,259 |
|
Credit Card Loans |
|
|
| 72,766 |
|
| 56,26 |
|
|
| 37,348 |
|
|
|
|
| 72,766 |
|
| 56,260 |
| ||
Placements in Banks Abroad |
|
|
| 1,227 |
|
|
| 232 |
|
|
| 261 |
|
|
|
|
| 1,227 |
|
|
| 232 |
|
Other Loans |
|
|
| 11,405 |
|
|
| 692 |
|
|
| 1,337 |
|
|
|
|
| 11,405 |
|
|
| 692 |
|
Accrued Interest, Adjustment and Quotation Differences |
|
| 1,775 |
|
|
| 1,407 |
|
|
| 969 |
|
|
| 1,775 |
| 1,407 |
| |||||
Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Documented Interest |
|
|
| (642 | ) |
|
| (597 | ) |
|
| (348 | ) |
|
|
|
| (642 | ) |
|
| (597 | ) |
Total Non-Financial Private-Sector and Residents Abroad |
|
|
| 140,060 |
|
| 101,14 |
|
|
| 69,015 |
|
|
|
|
| 140,060 |
|
| 101,140 |
| ||
Total Gross Loans |
|
|
| 142,158 |
|
|
| 101,902 |
|
|
| 69,208 |
|
|
|
|
| 142,158 |
|
|
| 101,902 |
|
Allowance for Loan Losses |
|
|
| (4,707 | ) |
|
| (3,560 | ) |
|
| (2,615 | ) |
|
|
|
| (4,707 | ) |
|
| (3,560 | ) |
Total Loans |
|
|
| 137,451 |
|
|
| 98,342 |
|
|
| 66,593 |
|
|
|
|
| 137,451 |
|
|
| 98,342 |
|
Loans with Guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
With Preferred Guarantees (2) |
|
|
| 3,322 |
|
|
| 2,988 |
|
|
| 2,695 |
|
|
|
|
| 3,322 |
|
|
| 2,988 |
|
Other Guarantees |
|
|
| 18,984 |
|
|
| 13,508 |
|
|
| 9,463 |
|
|
|
|
| 18,984 |
|
|
| 13,508 |
|
Total Loans with Guarantees |
|
|
| 22,306 |
|
|
| 16,496 |
|
|
| 12,158 |
|
|
|
|
| 22,306 |
|
|
| 16,496 |
|
(1)Includes local and international financial sectors.
(2) Before the allowance for loan losses.
Maturity Composition of the Loan Portfolio
The following table sets forth an analysis by type of loan and time remaining to maturity of our loan portfolio as of December 31, 2018.2019.
|
| As of December 31, 2018 |
| |||||||||||||
|
| Within 1 Year |
|
| After 1 Year but within 5 Years |
|
| After 5 Years |
|
| Total at December 31, 2018 |
| ||||
|
| (in millions of Pesos) |
| |||||||||||||
Non-Financial Public Sector (1) |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Financial Sector (1) |
|
| 5,277 |
|
|
| 2,665 |
|
|
| — |
|
|
| 7,942 |
|
Private Sector and Residents Abroad |
|
| 229,018 |
|
|
| 48,904 |
|
|
| 5,622 |
|
|
| 283,544 |
|
Overdrafts |
|
| 14,431 |
|
|
| — |
|
|
| — |
|
|
| 14,431 |
|
Promissory Notes |
|
| 28,152 |
|
|
| 7,655 |
|
|
| 213 |
|
|
| 36,020 |
|
Mortgage Loans |
|
| 1,802 |
|
|
| 4,949 |
|
|
| 5,042 |
|
|
| 11,793 |
|
Collateralized Loans |
|
| 684 |
|
|
| 303 |
|
|
| 11 |
|
|
| 998 |
|
Personal Loans |
|
| 14,576 |
|
|
| 14,286 |
|
|
| 283 |
|
|
| 29,145 |
|
Credit-Card Loans |
|
| 112,628 |
|
|
| 767 |
|
|
| — |
|
|
| 113,395 |
|
Other Loans |
|
| 53,777 |
|
|
| 20,944 |
|
|
| 73 |
|
|
| 74,794 |
|
Accrued Interest and Quotation |
|
| 5,388 |
|
|
| — |
|
|
| — |
|
|
| 5,388 |
|
Documented Interest |
|
| (2,420 | ) |
|
| — |
|
|
| — |
|
|
| (2,420 | ) |
Allowance for Loan Losses (2) |
|
| (15,550 | ) |
|
| — |
|
|
| — |
|
|
| (15,550 | ) |
Total Loans, Net |
|
| 218,757 |
|
|
| 51,569 |
|
|
| 5,622 |
|
|
| 275,948 |
|
|
(1) Interest and the UVA/CER adjustment were assigned to the first month. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Interest Rate Sensitivity of Outstanding Loans
The following table presents the interest rate sensitivity of our outstanding loans due after one year by denomination as of December 31, 2018.2019.
|
| As of December 31, 2018 |
| |||||
|
| In millions of Pesos |
|
| As a % of Total Loans |
| ||
Variable Rate (1)(2) |
|
|
|
|
|
|
|
|
Pesos |
|
| 2,804 |
|
|
| 4.90 |
|
Foreign Currency |
|
| 3,289 |
|
|
| 5.80 |
|
Total |
|
| 6,093 |
|
|
| 10.70 |
|
Fixed Rate (2)(3) |
|
|
|
|
|
|
|
|
Pesos |
|
| 27,811 |
|
|
| 48.60 |
|
Foreign Currency |
|
| 23,287 |
|
|
| 40.70 |
|
Total |
|
| 51,098 |
|
|
| 89.30 |
|
(1) Includes overdraft loans. (2) Includes past due loans and excludes interest receivable, differences in quotations and the UVA/CER adjustment. (3) Includes short-term and long-term loans whose rates are determined at the beginning of the loans’ life. |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
Credit Review Process
Credit risk is the potential for financial loss resulting from the failure of a borrower to honor its financial contractual obligations. Our credit risk arises mainly from Banco Galicia’s and Tarjeta Naranja’s lending activities, and from the fact that, in the normal course of business, these subsidiaries are parties to certain transactions with off-balance sheet treatment and associated risk, mainly commitments to extend credit and guarantees granted. See also Item 5. “Operating and Financial Review and Prospects”─A. “Operating Results”─ “Off-Balance Sheet Arrangements”.
Our credit approval and credit risk analysis is a centralized process based balancing a variety of factors. In undertaking credit approval and credit risk analyses, the Bank’s risk management, credit and origination divisions, both with respect to retail and wholesale businesses, efficiently work together to management asset quality, proactively management problem loans, aggressive charge-offs for uncollectible loans, and adequate loan loss provisioning. These processes also include the update of financial models to measure portfolio risk at operational and customer levels, facilitating the detection of defaulting, or potentially defaulting, loans and losses associated therewith, which allows for the proactive management of the same in order to prevent portfolio deterioration, enabling appropriate protection of our assets.
Banco Galicia
The Risk Division is responsible for the overall risk management of the Bank and its subsidiaries, in accordance with international best practices and handles solvency, financial, operational, credit, technological, reputational and strategic risks. The Risk Division is independent from the business areas of the Bank and its subsidiaries and it reports directly to the Bank’s General Division. The Risk Division works with the functional support of the Compliance and Money Laundering Prevention Division, a division that also reports to the Board of Directors, and whose purpose is to prevent the execution of financial operations with funds derived from illegal activities, and the use of the Bank as a vehicle for laundering money and funding terrorist activities. In addition, the Risk Division monitors compliance with the laws, regulations and internal policies in order to prevent financial and/or criminal penalties and to minimize any reputational impact. It is an independent role that coordinates and assists in identifying, providing advice on, monitoring, reporting and warning management regarding compliance risks.
Moreover, in order to have timely information and a flexible structure in place to efficiently respond and adjust to macro and microeconomic variables, the Risk Division is responsible for credit extension and recovery functions for companies and individuals.
The mission of the Risk Division is comprised of the following activities:
|
|
- actively and comprehensively managing and monitoring the risks taken by Banco Galicia and its subsidiaries, ensuring compliance with internal policies and regulations in force;
- keeping the Board of Directors informed of the risks faced by the Bank, proposing how to deal with such risks;
The Risk Division’s responsibilities include:
- ensuring action and contingency plans are in place to address any deviations from acceptable thresholds for risks posing a threat to business continuity;
Banco Galicia complies with all regulatory requirements set forth by Law No.25,246, as amended, Resolution No.30/2017, as amended, issued by the Financial Information Unit (the “UIF”) and Argentine Central Bank’s Communication “A” 6399, as supplemented and/or amended.
The Bank has policies, procedures and control structures in place related to the features of the various products offered, which help monitor transactions in order to identify unusual or suspicious transactions and report them to the UIF. The Compliance and Money Laundering Prevention Division is responsible for managing this risk, through the implementation of control and prevention procedures as well as the communication thereof to the rest of the organization through the drafting of the corresponding handbooks and the training of all employees.
Banco Galicia has appointed a Director responsible for the management of this risk, and has created a Committee in charge of planning, coordinating and enforcing the compliance with the policies set by the Board of Directors. The basic principle on which the regulations regarding prevention and control of money laundering are based is in line with the “know your customer” policy in force worldwide. Such risks are regularly reviewed through internal and external audits.
The following subdivisions depend on support from the Risk Division: Wholesale Credit, Retail Credit and Credit Recovery. They are responsible for developing and proposing strategies for credit and credit-granting policies, as well as managing and monitoring credit origination processes, follow-up and control thereof, and the recovery of past-due loans. The goal of these divisions is to ensure the quality of the loan portfolio, minimize costs
while maximizing efficiency, and recovery optimization, thus minimizing loan losses and optimizing efficiency in the credit extension process.
The Retail Credit Division is responsible for ensuring that the fraud screening and prevention process is effective, thereby assuring the quality of the retail portfolio. This Division designs and manages complex credit decision-taking models and tools, directs the alignment efforts to implement retail business strategies, and works together with the business team to suggest business opportunities.
The Wholesale Credit Division is responsible for the corporate rating process, thus assuring the quality of the wholesale portfolio. This Division directs alignment efforts to implement business strategies based on the customer service model, working together with the business team to suggest business opportunities. This Division deals specifically with complex businesses such as banks, public companies, capital markets transactions and investment projects.
Before approving a loan, Banco Galicia performs an assessment of the potential borrower and his/her financial condition. Approvals of loans exceeding certain amounts are analyzed based on the credit line and the customer.
Banco Galicia performs its risk assessment based on the following factors:
Qualitative Analysis | Assessment of the corporate borrower’s creditworthiness performed by the officer in charge of the account based on personal knowledge. |
Economic and Financial Risk | Quantitative analysis of the borrower’s balance sheet amounts. |
Economic Risk of the Sector | Measurement of the general risk of the financial sector where the borrower operates (based on statistical information, internal and external). |
Environmental Risk | Environmental impact analysis (required for all investment projects of significant amounts). |
Loans are generally approved pursuant to pre-set authorization levels, except loans exceeding certain amounts, which are approved by the Credit Committee.
The Recovery Management Division is responsible for administering and managing both the Bank’s performing and under-performing credit portfolio, seeking to minimize the deterioration thereof and establishing recovery of such credit portfolios. Management models and specific strategies are applied to each type of portfolio, segments and tranches in arrears, from early defaults to out-of-court and judicial proceedings.
Tarjeta Naranja
Credit Risk
Credit risk for Tarjeta Naranja arises from a variety of factors, including credit risk related to failures to pay by entities that Tarjeta Naranja lends money to and failures to pay outstanding credit card balances by individual clients that hold credit cards with Tarjeta Naranja.
With respect to investments, Tarjeta Naranja evaluates its credit risk or exposure pursuant to an investment and credit evaluation policy. In accordance with this policy, the Company (i) has certain internal credit risk rating requirements that any company in which it invests must meet, (ii) requires certain debt to equity ratios be maintained
by any company to which it lends money and (iii) has upper limits on the amount that it will invest in any given company.
The Company actively monitors the creditworthiness of its clients to minimize its overall exposure to their credit risk. The Company uses the following tools to evaluate and manage the creditworthiness of its clients:
- statistical models that determine the amount of credit that Tarjeta Naranja is comfortable extending to a client based on the client’s specific financial situation;
Procedure for Credit Card Application
The credit risk associated with a credit card applicant is evaluated by reviewing the information with respect to each applicant set forth above. The Risk Committee establishes the guidelines and requirements for credit card applicants. Such guidelines are based on statistical models and objective criteria in order for internal credit analysts to efficiently approve or reject each credit card application.
In addition to reviewing each applicant’s credit record, the Company also verifies the credit score and payment history of each applicant. Once the information has been verified and, to the extent the customer meets all applicable requirements, the credit card is issued and delivered at the applicant’s address, or the applicant may arrange to pick it up at any of the Company’s branches.
Determination of Credit Limits
Customer’s credit limits are determined on the basis of an assessment of each customer’s specific financial situation. Based on such assessment, customers are assigned one of five risk levels: A, B, C, D or E, with A being the lowest risk segment and E being the highest risk segment. In making such assignment, certain factors are considered, including, but not limited to, monthly income, number of family members, geographic location and occupation. The customer is then assigned a credit limit based on his or her risk level, which is shared among all credit cards associated with such customer, whether as a primary or additional cardholder. The credit limit assigned to each customer includes: (i) the monthly balance limit; (ii) the long-term purchase limit (the maximum amount for a customer to purchase in six or more installments using the credit card); (iii) the total credit limit (the maximum amount that may be owed to the Company); (iv) the maximum balance limit for cash advances, which represents 50% ofis determined based on risk segmentation, monthly income, and internal indebtedness as well as in the long-termfinancial system, not being able to exceed the LCPL (long-term purchase limit in a maximum amount of Ps.50,000 (the maximum amount for cash withdrawals) and (v) the limit for loans to be repaid in up to 50 months.plan).
Below is a detail of the percentage limits and nominal caps assigned to each risk segment.
|
| Monthly Balance Limit |
|
| Long-term Purchase Limit |
|
| Total Credit Limit |
|
| Monthly Balance Limit |
|
| Long-term Purchase Limit |
|
| Total Credit Limit |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risk Segment |
| Income % |
|
| Floor in Ps. |
|
| Top |
|
| Income % |
|
| Floor in Ps. |
|
| Top |
|
| Income % |
|
| Floor in Ps. |
|
| Top |
|
| Income % |
|
| Floor in Ps. |
|
| Top |
|
| Income % |
|
| Floor in Ps. |
|
| Top |
|
| Income % |
|
| Floor in Ps. |
|
| Top |
| ||||||||||||||||||
A (Lowest) |
|
| 100 |
|
|
| 3,000 |
|
|
| 50,000 |
|
|
| 250 |
|
|
| 3,000 |
|
|
| 120,000 |
|
|
| 300 |
|
|
| 3,000 |
|
|
| 140,000 |
|
|
| 100 |
|
|
| 5,000 |
|
|
| 50,000 |
|
|
| 160 |
|
|
| 5,000 |
|
|
| 120,000 |
|
|
| 200 |
|
|
| 5,000 |
|
|
| 140,000 |
|
B |
|
| 90 |
|
|
| 2,700 |
|
|
| 35,000 |
|
|
| 225 |
|
|
| 2,700 |
|
|
| 80,000 |
|
|
| 270 |
|
|
| 2,700 |
|
|
| 10,000 |
|
|
| 90 |
|
|
| 4,500 |
|
|
| 35,000 |
|
|
| 150 |
|
|
| 4,500 |
|
|
| 80,000 |
|
|
| 180 |
|
|
| 4,500 |
|
|
| 100,000 |
|
C |
|
| 80 |
|
|
| 2,400 |
|
|
| 22,000 |
|
|
| 200 |
|
|
| 2,400 |
|
|
| 50,000 |
|
|
| 240 |
|
|
| 2,400 |
|
|
| 60,000 |
|
|
| 80 |
|
|
| 4,000 |
|
|
| 22,000 |
|
|
| 140 |
|
|
| 4,000 |
|
|
| 50,000 |
|
|
| 170 |
|
|
| 4,000 |
|
|
| 60,000 |
|
D |
|
| 70 |
|
|
| 2,100 |
|
|
| 15,000 |
|
|
| 175 |
|
|
| 2,100 |
|
|
| 35,000 |
|
|
| 210 |
|
|
| 2,100 |
|
|
| 40,000 |
|
|
| 70 |
|
|
| 3,500 |
|
|
| 15,000 |
|
|
| 120 |
|
|
| 3,500 |
|
|
| 35,000 |
|
|
| 150 |
|
|
| 3,500 |
|
|
| 40,000 |
|
E (Highest) |
|
| 60 |
|
|
| 1,800 |
|
|
| 10,000 |
|
|
| 150 |
|
|
| 1,800 |
|
|
| 25,000 |
|
|
| 180 |
|
|
| 1,800 |
|
|
| 30,000 |
|
|
| 60 |
|
|
| 3,000 |
|
|
| 10,000 |
|
|
| 100 |
|
|
| 3,000 |
|
|
| 25,000 |
|
|
| 120 |
|
|
| 3,000 |
|
|
| 30,000 |
|
Tarjeta Naranja reviews such credit limits on a daily basis and a credit limit may be automatically increased for eligible cardholders meeting certain requirements, including payment history. In addition, Tarjeta Naranja
reviews cardholders’ applications for increases in the monthly limit and may, in its sole discretion, increase such limits based on the individual customer’s payment history and total income level.
Credit cards are extended to clients active in a wide range of business sectors. As such, the Company maintains a diversified portfolio of risk exposure based on economic fluctuations.
Financial Instruments Classification and Loss Provisions
General
The “Expected Credit Loss” (“ECL”) model applies to financial assets which are valued at both amortized cost and fair value through OCI.other comprehensive income (“OCI”). The standard establishes three categories to classify financial instruments, primarily taking into account the credit risk evolution over time. Stage 1 includes financial assets with normal or no significant risk associated; Stage 2 includes financial assets for which a significant increase in credit risk has been identified but they are not yet deemed to be credit-impaired and Stage 3 comprises financial assets which are impaired and/or subject to serious risk of impairment.Toimpairment. To calculate the provisions for credit impairment risk, IFRS 9 differentiates among these three stages by applying the following concepts:
- 12- Month Expected Credit Losses: Possible events of default within the 12 months following the date of the presentation of financial statements. Assets included in Stage 1 have their ECL measured at 12-month ECL.
The measurement of ECL in accordance with IFRS 9 should consider forward looking information.Toinformation. To estimate ECL, Grupo Galicia has applied the following definitions and parameters, in accordance with IFRS 9.
Financial Instruments Classification
Grupo Galicia classifies its financial instruments into the following groups: (i) retail loans, (ii) retail-like loans, (iii) wholesale loans and (iv) Tarjeta Naranja.
Each subsidiary of Grupo Galicia classifies financial instruments subject to impairment under IFRS 9 in stages, as follows:
- Stage 1: With respect to retail portfolios, Stage 1 includes every financial instrument up to 31 days past due. With respect to wholesale portfolios, Stage 1 includes every client whose Argentine Central Bank situation indicates a normal status (rating A) (i.e. low risk of bankruptcy).
- Stage 2: This stage includes financial assets for which a significant increase in credit risk has been identified. This stage considers two groups:
- For retail and retail like Portfolios between 31 and 90 days past due.
Probability of Default or Score with impairment risk.
For wholesale it considers credit ratings for which the risk of default has increased significantly.
- Stage 3:
With respect to retail portfolios, Stage 3 includes financial instruments that are 90 or more days past due. With respect to wholesaleFor all portfolios, Stage 3 includes every client whose Argentine Central Bank situation indicates a serious risk of bankruptcy (ratings C, D, E, F). With respect to retail portfolios, Stage 3 also includes financial instruments that are 90 or more days past due.
See the Argentina Central Bank Classification, on ─“Argentine Banking Regulation”─ “Loan Classification System”.
Definition of Default
A financial instrument is considered to be in default whenever payment is more than 90 days past due, or if Grupo Galicia believes that the amount due will not be repaid in full. The credit analysis for wholesale loans is not the same as for retail loans and Grupo Galicia’s definition of default with respect to wholesale portfolios is based on a credit analysis of the individual borrower. The definition of default is applied consistently to produce models for the Probability of Default, Exposure at Default and Loss Given Default in Grupo Galicia’s expected loss calculations:
- Probability of Default: This is the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months or during the remaining term of the obligation.
A financial instrument is no longer considered to be in default when it does not meet any of the above-mentioned default criteria.
Methodology for Expected Credit Loss Estimation
ECL impairment allowances recognized in the financial statements reflect the effect of a variety of possible economic outcomes (as described below) and calculated on a probability-weighted basis. ECL measurement involves the application of judgment and estimates. It is necessary to formulate multiple forward-looking economic forecasts and incorporate them into the ECL estimates. Grupo Galicia uses a standard framework to form economic scenarios to reflect assumptions about future economic conditions, supplemented with the use of management judgment, which may result in using alternative or additional economic scenarios and/or management adjustments.
IFRS 9 establishes the following standards regarding ECL:
- An unbiased weighted probability index, determined by the evaluation of different outcomes.
Grupo Galicia developed a forward-looking methodology to evaluate the impact of different future macroeconomic scenarios on the credit risk of the financial assets. Grupo Galicia prepared three outcomes with varying probabilities in accordance with IFRS: (i) a median scenario with a 70% probability of occurrence, (ii) a downside scenario with a 15% probability of occurrence and (iii) an upside scenario with a 15% probability of occurrence
In order to account for time value of money, Grupo Galicia assumes expected losses will take place proportionally over time. The ECL is determined by determining the Probability of Default, Exposure at Default and the Loss Given Default for each future month for each collective segment. These three components are multiplied and adjusted, as applicable, to take into account any forward-looking information, thus calculating ECL for each
month on a forward-looking basis, , which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate (or an estimate thereof).
Credit Risk Exposure of Financial Instruments
The following table sets forth the credit risk exposure of financial instruments for which an ECL allowance is recognized.
|
| Retail Portfolio |
| |||||||||||||
|
| December 31, 2018 |
| |||||||||||||
|
| ECL Staging |
|
|
|
|
| |||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
|
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 80,123 |
|
|
| 10,386 |
|
|
| - |
|
|
| 90,509 |
|
1-30 |
|
| 2,220 |
|
|
| 1,201 |
|
|
| - |
|
|
| 3,421 |
|
31-60 |
|
| - |
|
|
| 1,523 |
|
|
| - |
|
|
| 1,523 |
|
61-90 |
|
| - |
|
|
| 789 |
|
|
| - |
|
|
| 789 |
|
Default |
|
| - |
|
|
| - |
|
|
| 3,381 |
|
|
| 3,381 |
|
Gross Carrying amount |
|
| 82,343 |
|
|
| 13,899 |
|
|
| 3,381 |
|
|
| 99,623 |
|
Loss allowance |
|
| 2,600 |
|
|
| 2,318 |
|
|
| 2,560 |
|
|
| 7,478 |
|
Carrying amount |
|
| 79,743 |
|
|
| 11,581 |
|
|
| 821 |
|
|
| 92,145 |
|
|
| Retail like Portfolio |
| Retail Portfolio |
| ||||||||||||||||||||||||||
|
| December 31, 2018 |
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| ECL Staging |
|
|
|
|
| ECL Staging |
|
|
|
|
| ||||||||||||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| ||||||
|
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 29,273 |
|
|
| 3,103 |
|
|
| - |
|
|
| 32,376 |
|
| 78,567 |
|
|
| 28,798 |
|
|
| 912 |
|
|
| 108,277 |
|
1-30 |
|
| 867 |
|
|
| 458 |
|
|
| - |
|
|
| 1,325 |
|
| 1,696 |
|
|
| 1,520 |
|
|
| 185 |
|
|
| 3,401 |
|
31-60 |
|
| - |
|
|
| 336 |
|
|
| - |
|
|
| 336 |
|
| (134 | ) |
|
| 1,262 |
|
|
| 163 |
|
|
| 1,291 |
|
61-90 |
|
| - |
|
|
| 262 |
|
|
| - |
|
|
| 262 |
|
| - |
|
|
| 528 |
|
|
| 275 |
|
|
| 803 |
|
Default |
|
| - |
|
|
| - |
|
|
| 1,798 |
|
|
| 1,798 |
|
| - |
|
|
| - |
|
|
| 4,282 |
|
|
| 4,282 |
|
Gross Carrying amount |
|
| 30,140 |
|
|
| 4,159 |
|
|
| 1,798 |
|
|
| 36,097 |
|
| 80,129 |
|
|
| 32,108 |
|
|
| 5,817 |
|
|
| 118,054 |
|
Loss allowance |
|
| 267 |
|
|
| 280 |
|
|
| 1,180 |
|
|
| 1,727 |
|
| 4,050 |
|
|
| 1,877 |
|
|
| 4,576 |
|
|
| 10,503 |
|
Carrying amount |
|
| 29,873 |
|
|
| 3,879 |
|
|
| 618 |
|
|
| 34,370 |
|
| 76,079 |
|
|
| 30,231 |
|
|
| 1,241 |
|
|
| 107,551 |
|
|
| Wholesale Portfolio |
| Retail like Portfolio |
| ||||||||||||||||||||||||||
|
| December 31, 2018 |
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
| ECL Staging |
|
|
|
|
| ECL Staging |
|
|
|
|
| ||||||||||||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| ||||||
|
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
|
| 135,513 |
|
|
| 6,048 |
|
|
| 5 |
|
|
| 141,566 |
| |||||||||||||||
B1 |
|
| (2,238 | ) |
|
| 39 |
|
|
| - |
|
|
| (2,199 | ) | |||||||||||||||
0 |
| 33,043 |
|
|
| 4,298 |
|
|
| 497 |
|
|
| 37,838 |
| ||||||||||||||||
1-30 |
| 1,307 |
|
|
| 533 |
|
|
| 165 |
|
|
| 2,005 |
| ||||||||||||||||
31-60 |
| - |
|
|
| 160 |
|
|
| 64 |
|
|
| 224 |
| ||||||||||||||||
61-90 |
| - |
|
|
| 172 |
|
|
| 148 |
|
|
| 320 |
| ||||||||||||||||
Default |
|
| - |
|
|
| - |
|
|
| 2,515 |
|
|
| 2,515 |
|
| - |
|
|
| - |
|
|
| 2,437 |
|
|
| 2,437 |
|
Gross Carrying amount |
|
| 133,275 |
|
|
| 6,087 |
|
|
| 2,520 |
|
|
| 141,882 |
|
| 34,350 |
|
|
| 5,163 |
|
|
| 3,311 |
|
|
| 42,824 |
|
Loss allowance |
|
| 526 |
|
|
| 77 |
|
|
| 668 |
|
|
| 1,271 |
|
| 353 |
|
|
| 147 |
|
|
| 2,514 |
|
|
| 3,014 |
|
Carrying amount |
|
| 132,749 |
|
|
| 6,010 |
|
|
| 1,852 |
|
|
| 140,611 |
|
| 33,997 |
|
|
| 5,016 |
|
|
| 797 |
|
|
| 39,810 |
|
| Tarjeta Naranja |
| ||||||||||||||
|
| December 31, 2018 |
| |||||||||||||
|
| ECL Staging |
|
|
|
|
| |||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
|
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 36,512 |
|
|
| 3,024 |
|
|
| - |
|
|
| 39,536 |
|
1-30 |
|
| 2,572 |
|
|
| 947 |
|
|
| - |
|
|
| 3,519 |
|
31-60 |
|
| - |
|
|
| 1,702 |
|
|
| - |
|
|
| 1,702 |
|
61-90 |
|
| - |
|
|
| 940 |
|
|
| - |
|
|
| 940 |
|
Default |
|
| - |
|
|
| - |
|
|
| 3,787 |
|
|
| 3,787 |
|
Gross Carrying amount |
|
| 39,084 |
|
|
| 6,613 |
|
|
| 3,787 |
|
|
| 49,484 |
|
Loss allowance |
|
| 1,377 |
|
|
| 1,843 |
|
|
| 2,088 |
|
|
| 5,308 |
|
Carrying amount |
|
| 37,707 |
|
|
| 4,770 |
|
|
| 1,699 |
|
|
| 44,176 |
|
| Wholesale Portfolio |
| |||||||||||||
| December 31, 2019 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
| 206,109 |
|
|
| 5,687 |
|
|
| - |
|
|
| 211,796 |
|
B1 |
| - |
|
|
| 378 |
|
|
| - |
|
|
| 378 |
|
Default |
| - |
|
|
| - |
|
|
| 4,876 |
|
|
| 4,876 |
|
Gross Carrying amount |
| 206,109 |
|
|
| 6,065 |
|
|
| 4,876 |
|
|
| 217,050 |
|
Loss allowance |
| 540 |
|
|
| 180 |
|
|
| 4,493 |
|
|
| 5,213 |
|
Carrying amount |
| 205,569 |
|
|
| 5,885 |
|
|
| 383 |
|
|
| 211,837 |
|
|
| Retail Portfolio |
| Tarjeta Naranja |
| ||||||||||||||||||||||||||
| December 31, 2017 |
| December 31, 2019 |
| |||||||||||||||||||||||||||
|
| ECL Staging |
|
|
|
|
| ECL Staging |
|
|
|
|
| ||||||||||||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| ||||||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| 12-month ECL |
|
| Lifetime ECL |
|
| Lifetime ECL |
|
| Total |
| ||||||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 90,744 |
|
|
| 11,508 |
|
|
| - |
|
|
| 102,252 |
|
| 44,633 |
|
|
| 532 |
|
|
| 261 |
|
|
| 45,426 |
|
1-30 |
|
| 2,266 |
|
|
| 1,166 |
|
|
| - |
|
|
| 3,432 |
|
| 2,434 |
|
|
| 159 |
|
|
| 90 |
|
|
| 2,683 |
|
31-60 |
|
| - |
|
|
| 1,137 |
|
|
| - |
|
|
| 1,137 |
|
| - |
|
|
| 1,217 |
|
|
| 76 |
|
|
| 1,293 |
|
61-90 |
|
| - |
|
|
| 490 |
|
|
| - |
|
|
| 490 |
|
| - |
|
|
| 629 |
|
|
| 46 |
|
|
| 675 |
|
Default |
|
| - |
|
|
| - |
|
|
| 2,606 |
|
|
| 2,606 |
|
| - |
|
|
| - |
|
|
| 5,581 |
|
|
| 5,581 |
|
Gross Carrying amount |
|
| 93,010 |
|
|
| 14,301 |
|
|
| 2,606 |
|
|
| 109,917 |
|
| 47,067 |
|
|
| 2,537 |
|
|
| 6,054 |
|
|
| 55,658 |
|
Loss allowance |
|
| 1,094 |
|
|
| 917 |
|
|
| 1,676 |
|
|
| 3,687 |
|
| 2,023 |
|
|
| 704 |
|
|
| 4,686 |
|
|
| 7,413 |
|
Carrying amount |
|
| 91,916 |
|
|
| 13,384 |
|
|
| 930 |
|
|
| 106,230 |
|
| 45,044 |
|
|
| 1,833 |
|
|
| 1,368 |
|
|
| 48,245 |
|
|
| Retail like Portfolio |
| Retail Portfolio |
| ||||||||||||||||||||||||||
| December 31, 2017 |
| December 31, 2018 |
| |||||||||||||||||||||||||||
|
| ECL Staging |
|
|
|
|
| ECL Staging |
|
|
|
|
| ||||||||||||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| ||||||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 27,629 |
|
|
| 2,970 |
|
|
| - |
|
|
| 30,599 |
|
| 123,255 |
|
|
| 15,978 |
|
|
| - |
|
|
| 139,233 |
|
1-30 |
|
| 394 |
|
|
| 317 |
|
|
| - |
|
|
| 711 |
|
| 3,416 |
|
|
| 1,847 |
|
|
| - |
|
|
| 5,263 |
|
31-60 |
|
| - |
|
|
| 137 |
|
|
| - |
|
|
| 137 |
|
| - |
|
|
| 2,343 |
|
|
| - |
|
|
| 2,343 |
|
61-90 |
|
| - |
|
|
| 98 |
|
|
| - |
|
|
| 98 |
|
| - |
|
|
| 1,214 |
|
|
| - |
|
|
| 1,214 |
|
Default |
|
| - |
|
|
| - |
|
|
| 802 |
|
|
| 802 |
|
| - |
|
|
| - |
|
|
| 5,201 |
|
|
| 5,201 |
|
Gross Carrying amount |
|
| 28,023 |
|
|
| 3,522 |
|
|
| 802 |
|
|
| 32,347 |
|
| 126,671 |
|
|
| 21,382 |
|
|
| 5,201 |
|
|
| 153,254 |
|
Loss allowance |
|
| 222 |
|
|
| 127 |
|
|
| 617 |
|
|
| 966 |
|
| 4,000 |
|
|
| 3,566 |
|
|
| 3,937 |
|
|
| 11,503 |
|
Carrying amount |
|
| 27,801 |
|
|
| 3,395 |
|
|
| 185 |
|
|
| 31,381 |
|
| 122,671 |
|
|
| 17,816 |
|
|
| 1,264 |
|
|
| 141,751 |
|
|
| Wholesale Portfolio |
| Retail like Portfolio |
| ||||||||||||||||||||||||||
| December 31, 2017 |
| December 31, 2018 |
| |||||||||||||||||||||||||||
|
| ECL Staging |
|
|
|
|
| ECL Staging |
|
|
|
|
| ||||||||||||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| ||||||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
|
| 122,301 |
|
|
| 8,138 |
|
|
| 2 |
|
|
| 130,441 |
| |||||||||||||||
B1 |
|
| - |
|
|
| 77 |
|
|
| - |
|
|
| 77 |
| |||||||||||||||
0 | �� | 45,032 |
|
|
| 4,773 |
|
|
| - |
|
|
| 49,805 |
| ||||||||||||||||
1-30 |
| 1,334 |
|
|
| 704 |
|
|
| - |
|
|
| 2,038 |
| ||||||||||||||||
31-60 |
| - |
|
|
| 517 |
|
|
| - |
|
|
| 517 |
| ||||||||||||||||
61-90 |
| - |
|
|
| 403 |
|
|
| - |
|
|
| 403 |
| ||||||||||||||||
Default |
|
| - |
|
|
| - |
|
|
| 808 |
|
|
| 808 |
|
| - |
|
|
| - |
|
|
| 2,765 |
|
|
| 2,765 |
|
Gross Carrying amount |
|
| 122,301 |
|
|
| 8,215 |
|
|
| 810 |
|
|
| 131,326 |
|
| 46,366 |
|
|
| 6,397 |
|
|
| 2,765 |
|
|
| 55,528 |
|
Loss allowance |
|
| 212 |
|
|
| 45 |
|
|
| 494 |
|
|
| 751 |
|
| 411 |
|
|
| 431 |
|
|
| 1,814 |
|
|
| 2,656 |
|
Carrying amount |
|
| 122,089 |
|
|
| 8,170 |
|
|
| 316 |
|
|
| 130,575 |
|
| 45,955 |
|
|
| 5,966 |
|
|
| 951 |
|
|
| 52,872 |
|
| Wholesale Portfolio |
| |||||||||||||
| December 31, 2018 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
| 208,463 |
|
|
| 9,304 |
|
|
| 8 |
|
|
| 217,775 |
|
B1 |
| (3,442 | ) |
|
| 60 |
|
|
| - |
|
|
| (3,382 | ) |
Default |
| - |
|
|
| - |
|
|
| 3,870 |
|
|
| 3,870 |
|
Gross Carrying amount |
| 205,021 |
|
|
| 9,364 |
|
|
| 3,878 |
|
|
| 218,263 |
|
Loss allowance |
| 809 |
|
|
| 119 |
|
|
| 1,027 |
|
|
| 1,955 |
|
Carrying amount |
| 204,212 |
|
|
| 9,245 |
|
|
| 2,851 |
|
|
| 216,308 |
|
| Tarjeta Naranja |
| |||||||||||||
| December 31, 2018 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
| 56,167 |
|
|
| 4,652 |
|
|
| - |
|
|
| 60,819 |
|
1-30 |
| 3,956 |
|
|
| 1,457 |
|
|
| - |
|
|
| 5,413 |
|
31-60 |
| - |
|
|
| 2,618 |
|
|
| - |
|
|
| 2,618 |
|
61-90 |
| - |
|
|
| 1,445 |
|
|
| - |
|
|
| 1,445 |
|
Default |
| - |
|
|
| - |
|
|
| 5,826 |
|
|
| 5,826 |
|
Gross Carrying amount |
| 60,123 |
|
|
| 10,172 |
|
|
| 5,826 |
|
|
| 76,121 |
|
Loss allowance |
| 2,117 |
|
|
| 2,835 |
|
|
| 3,212 |
|
|
| 8,164 |
|
Carrying amount |
| 58,006 |
|
|
| 7,337 |
|
|
| 2,614 |
|
|
| 67,957 |
|
| Retail Portfolio |
| |||||||||||||
| December 31, 2017 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
| 139,594 |
|
|
| 17,703 |
|
|
| - |
|
|
| 157,297 |
|
1-30 |
| 3,486 |
|
|
| 1,793 |
|
|
| - |
|
|
| 5,279 |
|
31-60 |
| - |
|
|
| 1,750 |
|
|
| - |
|
|
| 1,750 |
|
61-90 |
| - |
|
|
| 754 |
|
|
| - |
|
|
| 754 |
|
Default |
| - |
|
|
| - |
|
|
| 4,009 |
|
|
| 4,009 |
|
Gross Carrying amount |
| 143,080 |
|
|
| 22,000 |
|
|
| 4,009 |
|
|
| 169,089 |
|
Loss allowance |
| 1,682 |
|
|
| 1,411 |
|
|
| 2,579 |
|
|
| 5,672 |
|
Carrying amount |
| 141,398 |
|
|
| 20,589 |
|
|
| 1,430 |
|
|
| 163,417 |
|
| Retail like Portfolio |
| |||||||||||||
| December 31, 2017 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
| 42,502 |
|
|
| 4,569 |
|
|
| - |
|
|
| 47,071 |
|
1-30 |
| 606 |
|
|
| 488 |
|
|
| - |
|
|
| 1,094 |
|
31-60 |
| - |
|
|
| 210 |
|
|
| - |
|
|
| 210 |
|
61-90 |
| - |
|
|
| 151 |
|
|
| - |
|
|
| 151 |
|
Default |
| - |
|
|
| - |
|
|
| 1,234 |
|
|
| 1,234 |
|
Gross Carrying amount |
| 43,108 |
|
|
| 5,418 |
|
|
| 1,234 |
|
|
| 49,760 |
|
Loss allowance |
| 341 |
|
|
| 195 |
|
|
| 949 |
|
|
| 1,485 |
|
Carrying amount |
| 42,767 |
|
|
| 5,223 |
|
|
| 285 |
|
|
| 48,275 |
|
|
| Tarjeta Naranja |
| |||||||||||||
| December 31, 2017 |
| ||||||||||||||
|
| ECL Staging |
|
|
|
|
| |||||||||
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
| 39,229 |
|
|
| 4,166 |
|
|
| - |
|
|
| 43,395 |
|
1-30 |
|
| 1,811 |
|
|
| 1,579 |
|
|
| - |
|
|
| 3,390 |
|
31-60 |
|
| - |
|
|
| 1,128 |
|
|
| - |
|
|
| 1,128 |
|
61-90 |
|
| - |
|
|
| 527 |
|
|
| - |
|
|
| 527 |
|
Default |
|
| - |
|
|
| - |
|
|
| 2,935 |
|
|
| 2,935 |
|
Gross Carrying amount |
|
| 41,040 |
|
|
| 7,400 |
|
|
| 2,935 |
|
|
| 51,375 |
|
Loss allowance |
|
| 904 |
|
|
| 1,270 |
|
|
| 1,703 |
|
|
| 3,877 |
|
Carrying amount |
|
| 40,136 |
|
|
| 6,130 |
|
|
| 1,232 |
|
|
| 47,498 |
|
| 67 |
| Wholesale Portfolio |
| |||||||||||||
| December 31, 2017 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
| 188,139 |
|
|
| 12,519 |
|
|
| 2 |
|
|
| 200,660 |
|
B1 |
| - |
|
|
| 119 |
|
|
| - |
|
|
| 119 |
|
Default |
| - |
|
|
| - |
|
|
| 1,243 |
|
|
| 1,243 |
|
Gross Carrying amount |
| 188,139 |
|
|
| 12,638 |
|
|
| 1,245 |
|
|
| 202,022 |
|
Loss allowance |
| 326 |
|
|
| 69 |
|
|
| 759 |
|
|
| 1,154 |
|
Carrying amount |
| 187,813 |
|
|
| 12,569 |
|
|
| 486 |
|
|
| 200,868 |
|
| Tarjeta Naranja |
| |||||||||||||
| December 31, 2017 |
| |||||||||||||
| ECL Staging |
|
|
|
|
| |||||||||
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
| |||
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Total |
| ||||
Days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
| 60,347 |
|
|
| 6,408 |
|
|
| - |
|
|
| 66,755 |
|
1-30 |
| 2,786 |
|
|
| 2,429 |
|
|
| - |
|
|
| 5,215 |
|
31-60 |
| - |
|
|
| 1,736 |
|
|
| - |
|
|
| 1,736 |
|
61-90 |
| - |
|
|
| 811 |
|
|
| - |
|
|
| 811 |
|
Default |
| - |
|
|
| - |
|
|
| 4,515 |
|
|
| 4,515 |
|
Gross Carrying amount |
| 63,133 |
|
|
| 11,384 |
|
|
| 4,515 |
|
|
| 79,032 |
|
Loss allowance |
| 1,391 |
|
|
| 1,954 |
|
|
| 2,620 |
|
|
| 5,965 |
|
Carrying amount |
| 61,742 |
|
|
| 9,430 |
|
|
| 1,895 |
|
|
| 73,067 |
|
Under Argentine Central Bank rules, we are required to cease the accrual of interest or to establish provisions equal to 100% of the interest earned on all loans pertaining to the non-accrual loan portfolio, meaning, all loans to borrowers in Stage 3.
The table below shows the interest income that would have been recorded on non-accrual loans on which the accrual of interest was discontinued and the recoveries of interest on loans classified as non-accrual on which the accrual of interest had been discontinued:
|
| December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (in millions of Pesos) |
| |||||
Interest Income that Would Have Been Recorded on Non-Accrual Loans on which the Accrual of Interest was Discontinued |
|
| 811 |
|
|
| 181 |
|
Recoveries of Interest on Loans Classified as Non-Accrual on which the Accrual of Interest had been Discontinued (1) |
|
| 41 |
|
|
| 9 |
|
|
(1) Recorded under “Other operating income”. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The table below sets forth such information for the fiscal years ended December 31, 2016, 2015 and 2014, which was prepared in accordance with Argentine Banking GAAP.
| As of December 31, | ||||||||||||
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| |||
|
| (in millions of Pesos, except ratios) | |||||||||||
Total Loans (1) |
|
| 142,158 |
|
|
| 101,902 |
|
|
| 69,208 |
|
|
Non-Accrual Loans (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
With Preferred Guarantees |
| 96 |
|
| 106 |
|
| 50 |
|
| |||
With Other Guarantees |
| 88 |
|
| 103 |
|
| 59 |
|
| |||
Without Guarantees |
|
| 4,520 |
|
|
| 2,958 |
|
|
| 2,363 |
|
|
Total Non-Accrual Loans (2) |
|
| 4,704 |
|
|
| 3,167 |
|
|
| 2,472 |
|
|
Past Due Loan Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Financial Public Sector |
| - |
|
| - |
|
| - |
|
| |||
Local Financial Sector |
| - |
|
| - |
|
| - |
|
| |||
Non-Financial Private Sector and Residents Abroad |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
| 189 |
|
| 188 |
|
| 169 |
|
| |||
Promissory Notes |
| 144 |
|
| 192 |
|
| 121 |
|
| |||
Mortgage Loans |
| 79 |
|
| 45 |
|
| 12 |
|
| |||
Pledge Loans |
| 3 |
|
| 8 |
|
| 9 |
|
| |||
Personal Loans |
| 274 |
|
| 304 |
|
| 262 |
|
| |||
Credit-Card Loans |
|
| 2,673 |
|
|
| 1,693 |
|
| 1,2 |
|
| |
Other Loans |
| 93 |
|
| 74 |
|
| 33 |
|
| |||
Total Past Due Loans |
|
| 3,455 |
|
|
| 2,504 |
|
|
| 1,806 |
|
|
Past Due Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
With Preferred Guarantees |
| 60 |
|
| 59 |
|
| 42 |
|
| |||
With Other Guarantees |
| 60 |
|
| 97 |
|
| 38 |
|
| |||
Without Guarantees |
|
| 3,335 |
|
|
| 2,348 |
|
|
| 1,726 |
|
|
Total Past Due Loans |
|
| 3,455 |
|
|
| 2,504 |
|
|
| 1,806 |
|
|
Allowance for Loan Losses |
|
| 4,707 |
|
| 3,560 |
|
|
| 2,615 |
|
| |
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of Total Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Past Due Loans |
| 2.43 |
|
| 2.46 |
|
| 2.61 |
|
| |||
Past Due Loans with Preferred Guarantees |
| 0.04 |
|
| 0.06 |
|
| 0.06 |
|
| |||
Past Due Loans with Other Guarantees |
| 0.04 |
|
| 0.1 |
|
| 0.05 |
|
| |||
Past Due Unsecured Amounts |
| 2.35 |
|
| 2.3 |
|
| 2.5 |
|
| |||
Non-Accrual Loans (2) |
| 3.31 |
|
| 3.11 |
|
| 3.57 |
|
| |||
Non-Accrual Loans (2) (Excluding Interbank Loans) |
| 3.36 |
|
| 3.12 |
|
| 3.59 |
|
| |||
Non-Accrual Loans (2) as a Percentage of Loans to the Private Sector |
| 3.31 |
|
| 3.11 |
|
| 3.57 |
|
| |||
Allowance for Loan Losses as a % of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
| 3.31 |
|
| 3.49 |
|
| 3.78 |
|
| |||
Total Loans Excluding Interbank Loans |
| 3.36 |
|
| 3.5 |
|
| 3.79 |
|
| |||
Total Non-Accrual Loans (2) |
| 100.06 |
|
| 112.41 |
|
| 105.78 |
|
| |||
Non-Accrual Loans with Guarantees as a Percentage of Non-Accrual Loans (2) |
| 3.91 |
|
|
| 6.60 |
|
| 4.41 |
|
| ||
Non-Accrual Loans as a Percentage of Total Past Due Loans |
| 136.15 |
|
| 126.48 |
|
| 136.88 |
|
| |||
|
|
|
|
|
| As od December 31, | |||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in millions of Pesos) | |||||
Interest Income that Would Have Been Recorded on Non-Accrual Loans on which the Accrual of Interest was Discontinued |
| 173 |
| 159 |
| 117 |
|
Recoveries of Interest on Loans Classified as Non-Accrual on which the Accrual of Interest had been Discontinued (1) |
| 9 |
| 8 |
| 6 |
|
|
|
The following tables present the changes in the loss allowance between January 1, 2018 and December 31, 2018:
Total Portfolio |
|
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
|
|
|
|
| |||
|
|
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Purchased credit- impaired |
|
| Total |
| |||||
Loss Allowance as of December 31, 2017 |
|
| 2,432 |
|
|
| 2,359 |
|
|
| 4,490 |
|
|
| - |
|
|
| 9,281 |
| ||
Inflation effect |
|
| (785 | ) |
|
| (762 | ) |
|
| (1,449 | ) |
|
| - |
|
|
| (2,996 | ) | ||
Movements with P&L Impact |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Transfer from Stage 1 to Stage 2 |
|
| (153 | ) |
|
| 153 |
|
|
| - |
|
|
| - |
|
|
| - |
| ||
Transfer from Stage 1 to Stage 3 |
|
| (54 | ) |
|
| - |
|
|
| 54 |
|
|
| - |
|
|
| - |
| ||
Transfer from Stage 2 to Stage 1 |
|
| 291 |
|
|
| (291 | ) |
|
| - |
|
|
| - |
|
|
| - |
| ||
New Financial Assets Originated or Purchased |
|
| 1,775 |
|
|
| 2,350 |
|
|
| 3,003 |
|
|
| - |
|
|
| 7,128 |
| ||
Changes in PDs/LGDs/EADs |
|
| 1,643 |
|
|
| 1,699 |
|
|
| 2,201 |
|
|
| - |
|
|
| 5,543 |
| ||
Changes to model assumptions and methodologies |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||
Modification of contractual cash flows of financial assets |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||
Foreign exchange and other movements |
|
| (72 | ) |
|
| (157 | ) |
|
| 329 |
|
|
| - |
|
|
| 100 |
| ||
Other movements with no P&L impact |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Transfers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from Stage 1 to Stage 2 |
|
| - |
|
|
| (330 | ) |
|
| 330 |
|
|
| - |
|
|
| - |
| ||
Transfer from Stage 2 to Stage 3 |
|
| - |
|
|
| 43 |
|
|
| (43 | ) |
|
| - |
|
|
| - |
| ||
Transfer from Stage 3 to Stage 2 |
|
| 10 |
|
|
| - |
|
|
| (10 | ) |
|
| - |
|
|
| - |
| ||
Financial assets derecognized during the period |
|
| (635 | ) |
|
| (1,135 | ) |
|
| (5,035 | ) |
|
| - |
|
|
| (6,805 | ) | ||
Write-offs |
|
| 319 |
|
|
| 585 |
|
|
| 2,623 |
|
|
| - |
|
|
| 3,527 |
| ||
Loss allowance as of December 31, 2018 |
|
| 4,771 |
|
|
| 4,514 |
|
|
| 6,493 |
|
|
| - |
|
|
| 15,778 |
| ||
The table below sets forth such information for the fiscal years ended December 31, 2016, 2015 and 2014, which was prepared in accordance with Argentine Banking GAAP.
| Fiscal Year Ended December 31, | |||||||||||||
|
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| |||
| (in millions of Pesos, except ratios) | |||||||||||||
Total Loans, Average (1) |
|
|
| 111,166 |
|
|
| 77,832 |
|
|
| 59,094 |
|
|
Allowance for Loan Losses at Beginning of Period (2) |
|
|
| 3,560 |
|
|
| 2,615 |
|
|
| 2,129 |
|
|
Changes in the Allowance for Loan Losses During the Period (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions Charged to Income |
|
|
| 3,389 |
|
|
| 2,128 |
|
|
| 2,339 |
|
|
Prior Allowances Reversed |
|
|
| (117 | ) |
| - |
|
|
| (1 | ) |
| |
Charge-Offs (A) |
|
|
| (2,125 | ) |
|
| (1,203 | ) |
|
| (1,840 | ) |
|
Inflation and Foreign Exchange Effect and Other Adjustments |
|
| - |
|
|
| 20 |
|
|
| (12 | ) |
| |
Allowance for Loan Losses at End of Period |
|
|
| 4,707 |
|
| 3,560 |
|
|
| 2,615 |
|
| |
Charge to the Income Statement during the Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions Charged to Income (2) |
|
|
| 3,389 |
|
|
| 2,128 |
|
|
| 2,339 |
|
|
Direct Charge-Offs, Net of Recoveries (B) |
|
|
| (272 | ) |
|
| (226 | ) |
|
| (181 | ) |
|
Recoveries of Provisions |
|
|
| (117 | ) |
| - |
|
|
| (1 | ) |
| |
Net Charge (Benefit) to the Income Statement |
|
|
| 3,000 |
|
|
| 1,902 |
|
|
| 2,157 |
|
|
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-Offs Net of Recoveries (A+B) to Average Loans (3) |
|
| 1.67 |
|
| 1.26 |
|
| 2.81 |
|
| |||
Net Charge to the Income Statement to Average Loans(3) |
|
|
| 2.70 |
|
| 2.44 |
|
| 3.65 |
|
| ||
|
|
|
|
|
|
Allocation of the Allowance for Financial Instruments
The following table presents the allocation of our allowance for financial instruments losses among the various loan categories and shows such allowances as a percentage of our total loan and other financing portfolio before deducting the allowance for loan and other financing losses.
Assets Subject to Impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item |
| Carrying Amount |
|
| Loss Allowances |
|
| Gross Carrying Amount |
|
| Collateral´s Fair Value |
| ||||
Overdrafts |
|
| 14,431 |
|
|
| 444 |
|
|
| 13,987 |
|
|
| - |
|
Mortagage Loans |
|
| 11,793 |
|
|
| 253 |
|
|
| 11,540 |
|
|
| 48,761 |
|
Collateral Loans |
|
| 998 |
|
|
| 10 |
|
|
| 988 |
|
|
| 4,038 |
|
Personal Loans |
|
| 29,145 |
|
|
| 1,122 |
|
|
| 28,023 |
|
|
| - |
|
Credit Card Loans |
|
| 113,395 |
|
|
| 9,406 |
|
|
| 103,989 |
|
|
| - |
|
Financial Leases |
|
| 2,198 |
|
|
| 26 |
|
|
| 2,172 |
|
|
| - |
|
Promisory Notes |
|
| 36,020 |
|
|
| 422 |
|
|
| 35,598 |
|
|
| - |
|
Pre-financing export loans |
|
| 69,536 |
|
|
| 1,643 |
|
|
| 67,893 |
|
|
| - |
|
Others |
|
| 35,021 |
|
|
| 2,329 |
|
|
| 32,692 |
|
|
| 2,429 |
|
Public Securities |
|
| 14,550 |
|
|
| 126 |
|
|
| 14,424 |
|
|
| - |
|
Total as of December 31, 2018 |
|
| 327,087 |
|
|
| 15,781 |
|
|
| 311,306 |
|
|
| 55,228 |
|
The table below sets forth such information for the fiscal years ended December 31, 2016 and 2015, which is not adjusted for inflation and, 2014,was prepared in accordance with Argentine Banking GAAP.
|
| As of December 31, |
| ||||
|
| 2016 |
|
| 2015 |
| |
|
| (in millions of Pesos, except ratios) |
| ||||
Total Loans (1) |
| 142,158 |
|
|
| 101,902 |
|
Non-Accrual Loans (2) |
|
|
|
|
|
|
|
With Preferred Guarantees |
| 96 |
|
| 106 |
| |
With Other Guarantees |
| 88 |
|
| 103 |
| |
Without Guarantees |
| 4,520 |
|
|
| 2,958 |
|
Total Non-Accrual Loans (2) |
| 4,704 |
|
|
| 3,167 |
|
Past Due Loan Portfolio |
|
|
|
|
|
|
|
Non-Financial Public Sector |
| - |
|
| - |
| |
Local Financial Sector |
| - |
|
| - |
| |
Non-Financial Private Sector and Residents Abroad |
|
|
|
|
|
|
|
Advances |
| 189 |
|
| 188 |
| |
Promissory Notes |
| 144 |
|
| 192 |
| |
Mortgage Loans |
| 79 |
|
| 45 |
| |
Pledge Loans |
| 3 |
|
| 8 |
| |
Personal Loans |
| 274 |
|
| 304 |
| |
Credit-Card Loans |
| 2,673 |
|
|
| 1,693 |
|
Other Loans |
| 93 |
|
| 74 |
| |
Total Past Due Loans |
| 3,455 |
|
|
| 2,504 |
|
Past Due Loans |
|
|
|
|
|
|
|
With Preferred Guarantees |
| 60 |
|
| 59 |
| |
With Other Guarantees |
| 60 |
|
| 97 |
| |
Without Guarantees |
| 3,335 |
|
|
| 2,348 |
|
Total Past Due Loans |
| 3,455 |
|
|
| 2,504 |
|
Allowance for Loan Losses |
| 4,707 |
|
| 3,560 |
| |
Ratios (%) |
|
|
|
|
|
|
|
As a % of Total Loans: |
|
|
|
|
|
|
|
Total Past Due Loans |
| 2.43 |
|
| 2.46 |
| |
Past Due Loans with Preferred Guarantees |
| 0.04 |
|
| 0.06 |
| |
Past Due Loans with Other Guarantees |
| 0.04 |
|
| 0.10 |
| |
Past Due Unsecured Amounts |
| 2.35 |
|
| 2.30 |
| |
Non-Accrual Loans (2) |
| 3.31 |
|
| 3.11 |
| |
Non-Accrual Loans (2) (Excluding Interbank Loans) |
| 3.36 |
|
| 3.12 |
| |
Non-Accrual Loans (2) as a Percentage of Loans to the Private Sector |
| 3.31 |
|
| 3.11 |
| |
Allowance for Loan Losses as a % of: |
|
|
|
|
|
|
|
Total Loans |
| 3.31 |
|
| 3.49 |
| |
Total Loans Excluding Interbank Loans |
| 3.36 |
|
| 3.50 |
| |
Total Non-Accrual Loans (2) |
| 100.06 |
|
| 112.41 |
| |
Non-Accrual Loans with Guarantees as a Percentage of Non-Accrual Loans (2) |
| 3.91 |
|
|
| 6.60 |
|
Non-Accrual Loans as a Percentage of Total Past Due Loans |
| 136.15 |
|
| 126.48 |
| |
(1) Before the allowance for loan losses.
(2) Non-Accrual loans are defined as those loans in the categories of: (a) Consumer portfolio: “Medium Risk”, “High Risk”, “Uncollectible”, and “Uncollectible Due to Technical Reasons”, and (b) Commercial portfolio: “With problems”, “High Risk of Insolvency”, “Uncollectible”, and “Uncollectible Due to Technical Reasons”.
| As of December 31, | ||||||
| 2016 |
|
| 2015 |
| ||
| (in millions of Pesos) | ||||||
Interest Income that Would Have Been Recorded on Non-Accrual Loans on which the Accrual of Interest was Discontinued |
| 173 |
|
|
| 159 |
|
Recoveries of Interest on Loans Classified as Non-Accrual on which the Accrual of Interest had been Discontinued (1) |
| 9 |
|
|
| 8 |
|
(1) Recorded under “Miscellaneous Income”.
| 69 |
Loss Experience
The following tables present the changes in the loss allowance between December 31, 2018 and December 31, 2019, the changes in the loss allowance between December 31, 2017 and December 31, 2018, and the changes in the loss allowance between January 1, 2017 and December 31, 2017.
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
|
|
|
|
| |||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Purchased credit- impaired |
|
| Total |
| |||||
Loss Allowance as of December 31, 2018 |
| 7,336 |
|
|
| 6,952 |
|
|
| 9,990 |
|
|
| - |
|
|
| 24,278 |
| |
Inflation effect |
| (2,568 | ) |
|
| (2,432 | ) |
|
| (3,496 | ) |
|
| - |
|
|
| (8,496 | ) | |
Movements with P&L Impact |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Transfer from Stage 1 to Stage 2 |
| (646 | ) |
|
| 646 |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 1 to Stage 3 |
| (165 | ) |
|
| - |
|
|
| 165 |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 1 |
| 1,223 |
|
|
| (1,223 | ) |
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 3 |
|
| - |
|
|
| (1,045 | ) |
|
| 1,045 |
|
|
| - |
|
|
| - |
|
Transfer from Stage 3 to Stage 2 |
|
| - |
|
|
| 88 |
|
|
| (88 | ) |
|
| - |
|
|
| - |
|
Transfer from Stage 3 to Stage 1 |
|
| 32 |
|
|
| - |
|
|
| (32 | ) |
|
| - |
|
|
| - |
|
New Financial Assets Originated or Purchased |
| 1,701 |
|
|
| 1,629 |
|
|
| 7,624 |
|
|
| - |
|
|
| 10,954 |
| |
Changes in PDs/LGDs/EADs |
| 2,424 |
|
|
| 552 |
|
|
| 6,982 |
|
|
| - |
|
|
| 9,958 |
| |
Changes to model assumptions and methodologies |
| (507 | ) |
|
| 151 |
|
|
| 1,592 |
|
|
| - |
|
|
| 1,236 |
| |
Modification of contractual cash flows of financial assets |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Foreign exchange and other movements |
| 237 |
|
|
| (220 | ) |
|
| 39 |
|
|
| - |
|
|
| 56 |
| |
Other movements with no P&L impact |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Transfers: |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Transfer from Stage 1 to Stage 2 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 3 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 3 to Stage 1 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Write-offs |
| (2,103 | ) |
|
| (2,188 | ) |
|
| (7,552 | ) |
|
| - |
|
|
| (11,843 | ) | |
Loss allowance as of December 31, 2019 |
| 6,964 |
|
|
| 2,910 |
|
|
| 16,269 |
|
|
| - |
|
|
| 26,143 |
| |
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
|
|
|
|
| |||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Purchased credit- impaired |
|
| Total |
| |||||
Loss Allowance as of December 31, 2017 |
| 3,739 |
|
|
| 3,631 |
|
|
| 6,906 |
|
|
| - |
|
|
| 14,276 |
| |
Inflation effect |
| (1,207 | ) |
|
| (1,171 | ) |
|
| (2,229 | ) |
|
| - |
|
|
| (4,607 | ) | |
Movements with P&L Impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from Stage 1 to Stage 2 |
| (236 | ) |
|
| 236 |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 1 to Stage 3 |
| (83 | ) |
|
| - |
|
|
| 83 |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 1 |
| 445 |
|
|
| (445 | ) |
|
| - |
|
|
| - |
|
|
| - |
| |
New Financial Assets Originated or Purchased |
| 2,730 |
|
|
| 3,616 |
|
|
| 4,619 |
|
|
| - |
|
|
| 10,965 |
| |
Changes in PDs/LGDs/EADs |
| 3,019 |
|
|
| 3,514 |
|
|
| 7,422 |
|
|
| - |
|
|
| 13,955 |
| |
Changes to model assumptions and methodologies |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Modification of contractual cash flows of financial assets |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Foreign exchange and other movements |
| (110 | ) |
|
| (242 | ) |
|
| 506 |
|
|
| - |
|
|
| 154 |
| |
Other movements with no P&L impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from Stage 1 to Stage 2 |
| - |
|
|
| (508 | ) |
|
| 508 |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 3 |
| - |
|
|
| 66 |
|
|
| (66 | ) |
|
| - |
|
|
| - |
| |
Transfer from Stage 3 to Stage 1 |
| 15 |
|
|
| - |
|
|
| (15 | ) |
|
| - |
|
|
| - |
| |
Write-offs |
| (976 | ) |
|
| (1,745 | ) |
|
| (7,744 | ) |
|
| - |
|
|
| (10,465 | ) | |
Loss allowance as of December 31, 2018 |
| 7,336 |
|
|
| 6,952 |
|
|
| 9,990 |
|
|
| - |
|
|
| 24,278 |
| |
|
| Stage 1 |
|
| Stage 2 |
|
| Stage 3 |
|
|
|
|
|
|
|
|
| |||
|
| 12-month |
|
| Lifetime |
|
| Lifetime |
|
| Purchased credit- impaired |
|
| Total |
| |||||
Loss Allowance as of January 1, 2017 |
| 3,499 |
|
|
| 3,937 |
|
|
| 5,985 |
|
|
| - |
|
|
| 13,421 |
| |
Inflation effect |
| (695 | ) |
|
| (782 | ) |
|
| (1,189 | ) |
|
| - |
|
|
| (2,666 | ) | |
Movements with P&L Impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from Stage 1 to Stage 2 |
| (161 | ) |
|
| 161 |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 1 to Stage 3 |
| (58 | ) |
|
| - |
|
|
| 58 |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 2 to Stage 1 |
| 931 |
|
|
| (931 | ) |
|
| - |
|
|
| - |
|
|
| - |
| |
New Financial Assets Originated or Purchased |
| 1,389 |
|
|
| 1,809 |
|
|
| 2,214 |
|
|
| - |
|
|
| 5,412 |
| |
Changes in PDs/LGDs/EADs |
| (233 | ) |
|
| 1,613 |
|
|
| 4,329 |
|
|
| - |
|
|
| 5,709 |
| |
Changes to model assumptions and methodologies |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Modification of contractual cash flows of financial assets |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Foreign exchange and other movements |
| (97 | ) |
|
| (250 | ) |
|
| 446 |
|
|
| - |
|
|
| 99 |
| |
Other movements with no P&L impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from Stage 2 to Stage 3 |
| - |
|
|
| (472 | ) |
|
| 472 |
|
|
| - |
|
|
| - |
| |
Transfer from Stage 3 to Stage 2 |
| - |
|
|
| 57 |
|
|
| (57 | ) |
|
| - |
|
|
| - |
| |
Transfer from Stage 3 to Stage 1 |
| 56 |
|
|
| - |
|
|
| (56 | ) |
|
| - |
|
|
| - |
| |
Write-offs |
| (892 | ) |
|
| (1,511 | ) |
|
| (5,296 | ) |
|
| - |
|
|
| (7,699 | ) | |
Loss allowance as of December 31, 2017 |
| 3,739 |
|
|
| 3,631 |
|
|
| 6,906 |
|
|
| - |
|
|
| 14,276 |
| |
The table below sets forth such information for the fiscal years ended December 31, 2016 and 2015, which is no adjusted for inflation and was prepared in accordance with Argentine Banking GAAP.
|
| As of December 31, | ||||||||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 | ||||||||||||||||||
|
| Amount |
|
| % of Loans |
| Loan Category % |
| Amount |
|
| % of Loans |
| Loan Category % |
| Amount |
|
| % of Loans |
| Loan Category % | |||
|
| (in millions of Pesos, except percentages) | ||||||||||||||||||||||
Non-Financial Public Sector |
| - |
|
| - |
| - |
| - |
|
| - |
| - |
| - |
|
| - |
| - | |||
Local Financial Sector |
| - |
|
| - |
| 1.5 |
| - |
|
| - |
| 0.8 |
| - |
|
| - |
| 0.3 | |||
Non-Financial Private Sector and Residents Abroad |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
| 161 |
|
| 0.1 |
| 7.1 |
| 157 |
|
| 0.2 |
| 8.4 |
| 121 |
|
| 0.2 |
| 5.8 | |||
Promissory Notes |
| 103 |
|
| 0.1 |
| 17.8 |
| 150 |
|
| 0.2 |
| 22.3 |
| 94 |
|
| 0.2 |
| 23.6 | |||
Mortgage Loans |
| 43 |
|
| - |
| 1.5 |
| 33 |
|
| - |
| 2.1 |
| 13 |
|
| - |
| 2.4 | |||
Pledge Loans |
| 3 |
|
| - |
| 0.5 |
| 7 |
|
| - |
| 0.4 |
| 5 |
|
| - |
| 0.7 | |||
Personal Loans |
| 324 |
|
| 0.2 |
| 10.8 |
| 311 |
|
| 0.3 |
| 9.1 |
| 299 |
|
| 0.4 |
| 10.1 | |||
Credit-Card Loans |
|
| 1,808 |
|
| 1.3 |
| 51.2 |
|
| 1,295 |
|
| 1.3 |
| 55.2 |
|
| 759 |
|
| 1.1 |
| 54 |
Placements in Correspondent Banks |
| - |
|
| - |
| 0.9 |
| - |
|
| - |
| 0.2 |
| - |
|
| - |
| 0.3 | |||
Other |
| 51 |
|
| - |
| 8.7 |
| 49 |
|
| - |
| 1.5 |
| 19 |
|
| - |
| 2.8 | |||
Unallocated(1) |
|
| 2,214 |
|
| 1.6 |
| - |
|
| 1,558 |
|
| 1.5 |
| - |
|
| 1,305 |
|
| 1.9 |
| - |
Total |
|
| 4,707 |
|
| 3.3 |
| 100.0 |
|
| 3,560 |
|
| 3.5 |
| 100.0 |
|
| 2,615 |
|
| 3.8 |
| 100 |
| Fiscal Year Ended December 31, |
| |||||||
|
|
| 2016 |
|
| 2015 |
| ||
| (in millions of Pesos, except ratios) |
| |||||||
Total Loans, Average (1) |
|
|
| 111,166 |
|
|
| 77,832 |
|
Allowance for Loan Losses at Beginning of Period (2) |
|
|
| 3,560 |
|
|
| 2,615 |
|
Changes in the Allowance for Loan Losses During the Period (2) |
|
|
|
|
|
|
|
|
|
Provisions Charged to Income |
|
|
| 3,389 |
|
|
| 2,128 |
|
Prior Allowances Reversed |
|
|
| (117 | ) |
| - |
| |
Charge-Offs (A) |
|
|
| (2,125 | ) |
|
| (1,203 | ) |
Inflation and Foreign Exchange Effect and Other Adjustments |
|
| - |
|
|
| 20 |
| |
Allowance for Loan Losses at End of Period |
|
|
| 4,707 |
|
| 3,560 |
| |
Charge to the Income Statement during the Period |
|
|
|
|
|
|
|
|
|
Provisions Charged to Income (2) |
|
|
| 3,389 |
|
|
| 2,128 |
|
Direct Charge-Offs, Net of Recoveries (B) |
|
|
| (272 | ) |
|
| (226 | ) |
Recoveries of Provisions |
|
|
| (117 | ) |
| - |
| |
Net Charge (Benefit) to the Income Statement |
|
|
| 3,000 |
|
|
| 1,902 |
|
Ratios (%) |
|
|
|
|
|
|
|
|
|
Charge-Offs Net of Recoveries (A+B) to Average Loans (3) |
|
| 1.67 |
|
| 1.26 |
| ||
Net Charge to the Income Statement to Average Loans(3) |
|
|
| 2.70 |
|
| 2.44 |
| |
(1) Before the allowance for loan losses.
(2) Includes quotation differences for Galicia Uruguay.
(3) Charge-offs plus direct charge-offs minus bad debts recovered.
|
|
Allocation of the Allowance for Financial Instruments
The following table presents the allocation of our allowance for financial instruments losses among the various financial instruments’ categories.
|
| As of December 31, 2019 |
| |||||||||||||
Item |
| Gross Carrying Amount |
|
| Loss Allowances |
|
| Net Carrying Amount |
|
| Collateral´s Fair Value |
| ||||
Advances |
|
| 15,892 |
|
|
| 316 |
|
|
| 15,576 |
|
|
| - |
|
Mortgage Loans |
|
| 15,053 |
|
|
| 896 |
|
|
| 14,157 |
|
|
| 38,776 |
|
Pledge Loans |
|
| 3,209 |
|
|
| 55 |
|
|
| 3,154 |
|
|
| 1,960 |
|
Personal Loans |
|
| 27,646 |
|
|
| 3,078 |
|
|
| 24,568 |
|
|
| - |
|
Credit Card Loans |
|
| 149,460 |
|
|
| 13,887 |
|
|
| 135,573 |
|
|
| - |
|
Financial Leases |
|
| 2,225 |
|
|
| 62 |
|
|
| 2,163 |
|
|
| - |
|
Overdrafts |
|
| 75,080 |
|
|
| 5,431 |
|
|
| 69,649 |
|
|
| - |
|
Pre-financing export loans |
|
| 53,937 |
|
|
| 241 |
|
|
| 53,696 |
|
|
| - |
|
Others |
|
| 88,747 |
|
|
| 2,148 |
|
|
| 86,599 |
|
|
| 4,599 |
|
Public Securities |
|
| 2,337 |
|
|
| 29 |
|
|
| 2,308 |
|
|
| - |
|
Total as of December 31, 2019 |
|
| 433,586 |
|
|
| 26,143 |
|
|
| 407,443 |
|
|
| 45,335 |
|
|
| As of December 31, 2018 |
| |||||||||||||
Item |
| Gross Carrying Amount |
|
| Loss Allowances |
|
| Net Carrying Amount |
|
| Collateral´s Fair Value |
| ||||
Advances |
|
| 22,199 |
|
|
| 683 |
|
|
| 21,516 |
|
|
| - |
|
Mortgage Loans |
|
| 18,141 |
|
|
| 389 |
|
|
| 17,752 |
|
|
| 75,010 |
|
Pledge Loans |
|
| 1,535 |
|
|
| 16 |
|
|
| 1,519 |
|
|
| 6,212 |
|
Personal Loans |
|
| 44,834 |
|
|
| 1,726 |
|
|
| 43,108 |
|
|
| - |
|
Credit Card Loans |
|
| 174,439 |
|
|
| 14,470 |
|
|
| 159,969 |
|
|
| - |
|
Financial Leases |
|
| 3,381 |
|
|
| 40 |
|
|
| 3,341 |
|
|
| - |
|
Overdrafts |
|
| 55,411 |
|
|
| 650 |
|
|
| 54,761 |
|
|
| - |
|
Pre-financing export loans |
|
| 106,969 |
|
|
| 2,527 |
|
|
| 104,442 |
|
|
| - |
|
Others |
|
| 53,875 |
|
|
| 3,584 |
|
|
| 50,291 |
|
|
| 3,736 |
|
Public Securities |
|
| 22,382 |
|
|
| 193 |
|
|
| 22,189 |
|
|
| - |
|
Total as of December 31, 2018 |
|
| 503,166 |
|
|
| 24,278 |
|
|
| 478,888 |
|
|
| 84,958 |
|
The table below sets forth such information for the fiscal years ended December 31, 2016 and 2015, which is not adjusted for inflation, and was prepared in accordance with Argentine Banking GAAP.
|
| As of December 31, | ||||||||||||||
|
| 2016 |
| 2015 | ||||||||||||
|
| Amount |
| % of Loans | Loan Category % | Amount |
| % of Loans | Loan Category % | |||||||
(in millions of Pesos, except percentages) | ||||||||||||||||
Non-Financial Public Sector |
| - |
|
| - |
| - |
| - |
|
| - |
| - | ||
Local Financial Sector |
| - |
|
| - |
| 1.5 |
| - |
|
| - |
| 0.8 | ||
Non-Financial Private Sector and Residents Abroad |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Advances |
| 161 |
|
| 0.1 |
| 7.1 |
| 157 |
|
| 0.2 |
| 8.4 | ||
Promissory Notes |
| 103 |
|
| 0.1 |
| 17.8 |
| 150 |
|
| 0.2 |
| 22.3 | ||
Mortgage Loans |
| 43 |
|
| - |
| 1.5 |
| 33 |
|
| - |
| 2.1 | ||
Pledge Loans |
| 3 |
|
| - |
| 0.5 |
| 7 |
|
| - |
| 0.4 | ||
Personal Loans |
| 324 |
|
| 0.2 |
| 10.8 |
| 311 |
|
| 0.3 |
| 9.1 | ||
Credit-Card Loans |
| 1,808 |
|
| 1.3 |
| 51.2 |
| 1,295 |
|
| 1.3 |
| 55.2 | ||
Placements in Correspondent Banks |
| - |
|
| - |
| 0.9 |
| - |
|
| - |
| 0.2 | ||
Other |
| 51 |
|
| - |
| 8.7 |
| 49 |
|
| - |
| 1.5 | ||
Unallocated(1) |
| 2,214 |
|
| 1.6 |
| - |
| 1,558 |
|
| 1.5 |
| - | ||
Total |
| 4,707 |
|
| 3.3 |
| 100.0 |
| 3,560 |
|
| 3.5 |
| 100.0 | ||
(1) The unallocated reserve consists of the allowances established on the portfolio classified in the “normal situation” category and includes additional reserves in excess of Argentine Central Bank minimum requirements.
Deposits
The following table sets out the composition of our deposits as of December 31, 2019, December 31, 2018 and 2017 and as of January 1,December 31, 2017.
|
| As of December 31, |
|
| As of January 1, |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
| |||||||||
Deposits in pesos |
|
|
|
|
|
|
|
|
|
|
|
|
Checking Accounts |
|
| 39,854 |
|
|
| 48,899 |
|
|
| 51,554 |
|
Savings Accounts |
|
| 61,129 |
|
|
| 61,069 |
|
|
| 47,850 |
|
Time Deposits |
|
| 89,205 |
|
|
| 78,140 |
|
|
| 79,112 |
|
Time Deposits UVA |
|
| 1,985 |
|
|
| 889 |
|
|
| 153 |
|
Other Deposits (1) |
|
| 1,273 |
|
|
| 1,308 |
|
|
| 2,781 |
|
Plus: Accrued Interest, Quotation Differences Adjustment |
|
| 3,984 |
|
|
| 2,107 |
|
|
| 1,624 |
|
Total Deposits in pesos |
|
| 197,430 |
|
|
| 192,412 |
|
|
| 183,074 |
|
Deposits in foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 137,762 |
|
|
| 87,182 |
|
|
| 50,027 |
|
Time Deposits |
|
| 24,064 |
|
|
| 16,163 |
|
|
| 12,356 |
|
Other Deposits (1) |
|
| 793 |
|
|
| 587 |
|
|
| 31,606 |
|
Plus: Accrued Interest, Quotation Differences Adjustment |
|
| 48 |
|
|
| 24 |
|
|
| 15 |
|
Total Deposits in foreign currency |
|
| 162,667 |
|
|
| 103,956 |
|
|
| 94,004 |
|
Total Deposits |
|
| 360,097 |
|
|
| 296,368 |
|
|
| 277,078 |
|
(1) Includes other deposits originated by Decree No.616/05, reprogrammed deposits under judicial proceedings and other demand deposits. In 2019, our consolidated deposits decreased 29% mainly as a result of a Ps.94,057 million decrease in foreign currency savings accounts and a Ps.34,542 million decrease in savings accounts in pesos. These decreases were mainly due to deposits received by Banco Galicia. |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In 2018, our consolidated deposits increased 22% mainly as a result of a Ps.11,065Ps.77,810 million increase in foreign currency savings accounts and a Ps.17,022 million increase in time deposits in Pesos and a Ps.50,580 million increase in foreign currency savings accounts.pesos. These increases were mainly due to deposits received by Banco Galicia.
In 2017, our consolidated deposits increased 7% mainly as a result of a Ps.13,219 million increase in deposits in saving accounts and a Ps.37,155 million increase in foreign currency savings accounts. These increases were mainly due to deposits received by Banco Galicia.
For more information, see Item 5. “Operating and Financial Review and Prospects” – A.“Operating Results”- “Funding”.
The following table provides a breakdown of our consolidated deposits by contractual term and currency of denomination as of December 31, 2018.2019.
|
| December 31, |
| |||||||||||||||||||||
|
| 2019 |
| |||||||||||||||||||||
|
| Within 3 Months |
|
| After 3 Months but Within 3 Months |
|
| After 6 Months but Within 12 Months |
|
| 1 year |
|
| After 1 but Within 5 years |
|
| Total |
| ||||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||||||
Deposits in pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 59,204 |
|
|
| — |
|
|
| — |
|
|
| 59,204 |
|
|
| — |
|
|
| 59,204 |
|
Checking Accounts |
|
| 68,629 |
|
|
| — |
|
|
| — |
|
|
| 68,629 |
|
|
| — |
|
|
| 68,629 |
|
Time Deposits |
|
| 113,425 |
|
|
| 1,892 |
|
|
| 674 |
|
|
| 115,991 |
|
|
| 11 |
|
|
| 116,002 |
|
Total deposits in pesos |
|
| 241,258 |
|
|
| 1,892 |
|
|
| 674 |
|
|
| 243,824 |
|
|
| 11 |
|
|
| 243,835 |
|
Deposits in pesos + UVA adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
Savings Accounts |
|
| 1,175 |
|
|
| — |
|
|
| — |
|
|
| 1,175 |
|
|
| — |
|
|
| 1,175 |
|
Time Deposits |
|
| 658 |
|
|
| 75 |
|
|
| 16 |
|
|
| 749 |
|
|
| — |
|
|
| 749 |
|
Total deposits in pesos + UVA adjustment |
|
| 1,833 |
|
|
| 75 |
|
|
| 16 |
|
|
| 1,924 |
|
|
| — |
|
|
| 1,924 |
|
Deposits in foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
Savings Accounts |
|
| 118,037 |
|
|
| — |
|
|
| — |
|
|
| 118,037 |
|
|
| — |
|
|
| 118,037 |
|
Checking Accounts |
|
| 939 |
|
|
| — |
|
|
| — |
|
|
| 939 |
|
|
| — |
|
|
| 939 |
|
Time Deposits |
|
| 20,589 |
|
|
| 2,583 |
|
|
| 1,115 |
|
|
| 24,287 |
|
|
| 42 |
|
|
| 24,329 |
|
Total deposits in foreign currency |
|
| 139,565 |
|
|
| 2,583 |
|
|
| 1,115 |
|
|
| 143,263 |
|
|
| 42 |
|
|
| 143,305 |
|
Total deposits |
|
| 382,656 |
|
|
| 4,550 |
|
|
| 1,805 |
|
|
| 389,011 |
|
|
| 53 |
|
|
| 389,064 |
|
Savings Accounts |
|
| 178,416 |
|
|
| — |
|
|
| — |
|
|
| 178,416 |
|
|
| — |
|
|
| 178,416 |
|
Checking Accounts |
|
| 69,568 |
|
|
| — |
|
|
| — |
|
|
| 69,568 |
|
|
| — |
|
|
| 69,568 |
|
Time Deposits |
|
| 134,672 |
|
|
| 4,550 |
|
|
| 1,805 |
|
|
| 141,027 |
|
|
| 53 |
|
|
| 141,080 |
|
(1) Only principal. Includes the UVA adjustment.
|
| December 31, |
| |||||||||||||||||||||
|
| 2018 |
| |||||||||||||||||||||
|
| Within 3 Months |
|
| After 3 Months but Within 3 Months |
|
| After 6 Months but Within 12 Months |
|
| 1 year |
|
| After 1 but Within 5 years |
|
| Total |
| ||||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||||||
Deposits in pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 61,144 |
|
|
| — |
|
|
| — |
|
|
| 61,144 |
|
|
| — |
|
|
| 61,144 |
|
Checking Accounts |
|
| 40,653 |
|
|
| — |
|
|
| — |
|
|
| 40,653 |
|
|
| — |
|
|
| 40,653 |
|
Time Deposits |
|
| 85,919 |
|
|
| 2,445 |
|
|
| 1,873 |
|
|
| 90,237 |
|
|
| 23 |
|
|
| 90,260 |
|
Total deposits in pesos |
|
| 187,716 |
|
|
| 2,445 |
|
|
| 1,873 |
|
|
| 192,034 |
|
|
| 23 |
|
|
| 192,057 |
|
Deposits in pesos + UVA adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
Savings Accounts |
|
| 543 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| 543 |
|
|
| 543 |
|
Time Deposits |
|
| 1,671 |
|
|
| 241 |
|
|
| 72 |
|
|
| 1,984 |
|
|
| 1 |
|
|
| 1,985 |
|
Total deposits in pesos + UVA adjustment |
|
| 2,214 |
|
|
| 241 |
|
|
| 72 |
|
|
| 2,527 |
|
|
| 544 |
|
|
| 2,528 |
|
Deposits in foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
Savings Accounts |
|
| 101,169 |
|
|
| — |
|
|
| — |
|
|
| 101,169 |
|
|
| — |
|
|
| 101,169 |
|
Checking Accounts |
|
| 37,433 |
|
|
| — |
|
|
| — |
|
|
| 37,433 |
|
|
| — |
|
|
| 37,433 |
|
Time Deposits |
|
| 21,978 |
|
|
| 1,756 |
|
|
| 301 |
|
|
| 24,035 |
|
|
| 30 |
|
|
| 24,065 |
|
Total deposits in foreign currency |
|
| 160,580 |
|
|
| 1,756 |
|
|
| 301 |
|
|
| 162,637 |
|
|
| 30 |
|
|
| 162,667 |
|
Total deposits |
|
| 350,510 |
|
|
| 4,442 |
|
|
| 2,246 |
|
|
| 357,198 |
|
|
| 54 |
|
|
| 357,252 |
|
Savings Accounts |
|
| 162,856 |
|
|
| — |
|
|
| — |
|
|
| 162,856 |
|
|
|
|
|
|
| 162,856 |
|
Checking Accounts |
|
| 78,086 |
|
|
| — |
|
|
| — |
|
|
| 78,086 |
|
|
| — |
|
|
| 78,086 |
|
Time Deposits |
|
| 109,568 |
|
|
| 4,442 |
|
|
| 2,246 |
|
|
| 116,256 |
|
|
| 54 |
|
|
| 116,310 |
|
|
|
The chart above shows that the highest concentration of maturities for time deposits was in the period of up to 89 days, representing 94%95.5% of total time deposits. As of December 31, 2018,2019, the average term for the raising of non-adjusted Peso-denominated time deposits was 4541 days, for UVA-adjusted deposits the average term was 221195 days and for those in foreign currency the term was about 4354 days. Foreign currency-denominated deposits, equal to Ps.162, 667Ps.146,248 million, represented 46%37.2% of total deposits.
The table below sets forth such information for the fiscal year ended December 31, 2016, which was prepared in accordance with Argentine Banking GAAP.
| |||||
| |||||
| |||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
|
The following table provides information about the maturity of our outstanding time deposits exceeding US$100,000, as of December 31, 2018.2019.
|
| December 31, |
| |
|
|
|
| |
|
| (in millions of Pesos) |
| |
Deposits over US$100,000 |
|
|
|
|
Time Deposits |
|
|
|
|
Within 30 Days |
|
|
|
|
After 31 Days but Within 59 Days |
|
|
|
|
After 60 Days but Within 89 Days |
|
|
|
|
After 90 Days but Within 179 Days |
|
|
|
|
After 180 Days but Within 365 Days |
|
|
|
|
After 365 Days |
|
|
|
|
Total Outstanding Time Deposits Exceeding US$100.000 (1) |
|
|
|
|
(1) Only principal.
Return on Equity and Assets
The following table presents certain selected financial information and ratios for the periods indicated.
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||||||
|
| 2018 |
|
| 2017 |
| 2019 | 2018 | 2017 | |||||||||||
|
| (in millions of Pesos, except percentages) |
| (in millions of Pesos, except percentages) | ||||||||||||||||
(Loss) / Income for the Year Attributable to GFG |
|
| (3,466 | ) |
|
| 6,794 |
|
|
| 23,708 |
|
|
| (5,332 | ) |
|
| 10,451 |
|
Total Assets |
|
| 569,692 |
|
|
| 489,641 |
|
| 685,519 |
|
|
| 876,371 |
| 753,227 |
| |||
Shareholders’ Equity Attributable to GFG |
|
| 60,125 |
|
|
| 64,525 |
|
| 113,942 |
|
|
| 92,492 |
|
|
| 99,260 |
| |
Net Income as a Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Assets |
|
| (0.61 | ) |
|
| 1.39 |
|
| 3.46 |
|
|
| (0.61 | ) |
|
| 1.39 |
| |
Shareholders’ Equity Attributable to GFG |
|
| (5.76 | ) |
|
| 10.53 |
|
| 20.81 |
|
|
| (5.76 | ) |
| 10.53 |
| ||
Declared Cash Dividends |
|
| 2,000 |
|
|
| 1,617 |
|
| (1) |
|
|
| 2,661 |
|
|
| 2,487 |
| |
Dividend Payout Ratio |
|
| (0.58 | ) |
|
| 0.24 |
|
| (1) |
|
|
| (49.91 | ) |
| 23.80 |
| ||
Shareholders’ Equity Attributable to GFG as a Percentage of Total Assets |
|
| 10.55 |
|
|
| 13.18 |
|
| 16.62 |
|
|
| 10.55 |
|
|
| 13.18 |
| |
(1) The table below sets forth such informationcash dividend distribution for the fiscal yearsyear ended at December 31, 20162019, is pending approval. For more information see Item 8. “Financial Information”-A.“Consolidated Statements and 2015, which was prepared in accordance with Argentine Banking GAAP.Other Financial Information”-“Dividend Policy and Dividends”-“Dividends” -“Grupo Financiero Galicia”.
|
| Fiscal Year Ended December 31, |
| |||||
|
| 2016 |
|
| 2015 |
| ||
|
| (in millions of Pesos, except percentages) |
| |||||
Net Income |
|
| 6,018 |
|
|
| 4,338 |
|
Average Total Assets |
|
| 184,395 |
|
|
| 122,684 |
|
Average Shareholders’ Equity |
|
| 17,178 |
|
|
| 12,205 |
|
Shareholders’ Equity at End of the Period |
|
| 20,353 |
|
|
| 14,485 |
|
Net Income as a Percentage of: |
|
|
|
|
|
|
|
|
Average Total Assets |
| 3.48 |
|
| 3.83 |
| ||
Average Shareholders’ Equity |
| 35.03 |
|
| 35.54 |
| ||
Declared Cash Dividends |
| 240 |
|
| 150 |
| ||
Dividend Payout Ratio |
| 3.99 |
|
| 3.46 |
| ||
Average Shareholders’ Equity as a Percentage of Average Total Assets |
| 9.32 |
|
| 9.95 |
| ||
Shareholders’ Equity at the End of the Period as a Percentage of Average Total Assets |
| 11.04 |
|
| 11.81 |
| ||
Short-Term Borrowings
Our short-term borrowings include all of our borrowings (including repurchase agreement transactions, debt securities and notes)securities) with a contractual maturity of less than one year, owed to foreign or domestic financial institutions or holders of notes.
|
| As of December 31, |
|
| As of January 1, |
|
| As of December 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| 2019 | 2018 | 2017 | ||||||||||||
|
| (in millions of Pesos) |
| (in millions of Pesos) | ||||||||||||||||||||
Short-Term Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentine Central Bank |
|
| 29 |
|
|
| 22 |
|
|
| 24 |
|
| 23 |
|
|
| 44 |
|
|
| 35 |
| |
Other Domestic Financial Institutions and International Banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Credit Lines from Domestic Financial Institutions |
|
| 2,744 |
|
|
| 290 |
|
|
| 2,108 |
|
| 2,498 |
|
|
| 4,221 |
|
|
| 452 |
| |
International Banks and Credit Agencies |
|
| 7,523 |
|
|
| 6,101 |
|
|
| 3,808 |
|
| 11,168 |
|
|
| 11,573 |
|
|
| 9,465 |
| |
Repurchase Transactions |
|
| 1,943 |
|
|
| 1,671 |
|
|
| 3,033 |
|
| — |
|
|
| — |
|
|
| 2,571 |
| |
Debt Securities |
| 1,411 |
|
|
| 2,745 |
|
|
| — |
| |||||||||||||
Total short-term borrowings |
|
| 12,239 |
|
|
| 8,084 |
|
|
| 8,973 |
|
| 15,100 |
|
|
| 18,583 |
|
|
| 12,523 |
| |
As of December 31, 2018,2019, our short-term borrowings consisted of (i) credit lines from the Argentine Central Bank, which represented 0.2% of our short-term borrowings; (ii) credit lines from domestic financial institutions (other than the Argentine Central Bank) and international banks, which represented 84%91% of our short term borrowings and repurchase agreements,(iii) debt securities, which represented 16%9% of our short-term borrowings.
The table below shows such information for the fiscal years ended December 31, 2016 and 2015, which was prepared in accordance with Argentine GAAP.
|
| As of December 31, |
| |||||
|
| 2016 |
|
| 2015 |
| ||
|
| (in millions of Pesos) |
| |||||
Short-Term Borrowings |
|
|
|
|
|
|
|
|
Argentine Central Bank |
| 13 |
|
| 7 |
| ||
Other Banks and International Entities |
|
|
|
|
|
|
|
|
Credit Lines from Domestic Banks |
|
| 1,609 |
|
| 553 |
| |
Credit Lines from Foreign Banks |
|
| 2,067 |
|
|
| 1,107 |
|
Notes |
| - |
|
| - |
| ||
Repurchase |
|
| 1,646 |
|
| - |
| |
Total |
|
| 5,335 |
|
|
| 1,667 |
|
We also borrow funds under various credit arrangements with domestic and foreign banks and /or lending agencies, which is reflected in the following table:
|
| As of December 31, |
|
| As of January 1, |
|
| As of December 31, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| 2019 | 2018 | 2017 | ||||||||||||
|
| (in millions of Pesos) |
| (in millions of Pesos) | ||||||||||||||||||||
International Banks and Credit Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prefinancing of exports |
|
| 5,274 |
|
|
| 5,651 |
|
|
| 3,799 |
| ||||||||||||
Prefinancing of exportations |
| 1,456 |
|
|
| 8,113 |
|
|
| 8,772 |
| |||||||||||||
Export and Import Operations |
|
| 2,249 |
|
|
| 450 |
|
|
| 9 |
|
| 9,712 |
|
|
| 3,460 |
|
|
| 693 |
| |
Total Banks and Credit Agencies |
|
| 7,523 |
|
|
| 6,101 |
|
|
| 3,808 |
|
| 11,168 |
|
|
| 11,573 |
|
|
| 9,465 |
| |
Domestic Financial Institutions | �� |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| |
Call |
|
| 804 |
|
|
| 89 |
|
|
| 304 |
|
| 504 |
|
|
| 1,237 |
|
|
| 143 |
| |
Tarjetas Regionales Credit Line |
|
| 1,940 |
|
|
| 201 |
|
|
| 1,804 |
|
| 1,994 |
|
|
| 2,984 |
|
|
| 309 |
| |
Total Domestic Financial Institutions |
|
| 2,744 |
|
|
| 290 |
|
|
| 2,108 |
|
| 2,498 |
|
|
| 4,221 |
|
|
| 452 |
| |
Total Domestic Financial Institutions and International Banks |
|
| 10,267 |
|
|
| 6,391 |
|
|
| 5,916 |
|
| 13,666 |
|
|
| 15,794 |
|
|
| 9,917 |
| |
The table below shows such information for the fiscal years ended December 31, 2016 and 2015, which was prepared in accordance with Argentine GAAP.
| As of December 31, |
| ||||||
|
| 2016 |
|
| 2015 |
| ||
|
| (in millions of Pesos) |
| |||||
Banks and International Entities |
|
|
|
|
|
|
|
|
Contractual Short-term Liabilities |
| - |
|
| - |
| ||
Other Lines from Foreign Banks |
|
| 2,067 |
|
|
| 1,107 |
|
Total Banks and International Entities |
|
| 2,067 |
|
|
| 1,107 |
|
Domestic and Financial Institutions |
|
|
|
|
|
|
|
|
Contractual Short-term Liabilities |
| - |
|
| - |
| ||
Other Lines from Credit from Domestic Banks |
|
| 1,609 |
|
| 553 |
| |
Total Domestic and Financial Institutions |
|
| 1,609 |
|
| 553 |
| |
Total |
|
| 3,676 |
|
|
| 1,660 |
|
The following table sets forth the items listed below for our significant short-term borrowings for the fiscal years ended December 31, 2018,2019, December 31, 20172018 and as of January 1,December 31, 2017:
- the weighted-average interest rate at year-end,
|
| As of December 31, |
|
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| |||
|
| (in millions of Pesos, except percentages) |
|
| |||||||||
Argentine Central Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| — |
| % |
| — |
| % |
| — |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 55 |
|
|
| 49 |
|
|
| 25 |
|
|
Average Balances for Each Period |
|
| 32 |
|
|
| 37 |
|
|
| 15 |
|
|
Weighted-average Interest Rate for the Period |
|
| — |
| % |
| — |
| % |
| — |
| % |
Credit Lines from Domestic Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| 62.7 |
| % |
| 36.1 |
| % |
| 27 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 3,231 |
|
|
| 4,971 |
|
|
| 1,680 |
|
|
Average Balances for Each Period |
|
| 2,273 |
|
|
| 3,068 |
|
|
| 676 |
|
|
Weighted-average Interest Rate for the Period |
|
| 45.6 |
| % |
| 44.9 |
| % |
| 26 |
| % |
Credit Lines from Foreign Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| 6.0 |
| % |
| 2.9 |
| % |
| 3 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 20,469 |
|
|
| 25,811 |
|
|
| 4,132 |
|
|
Average Balances for Each Period |
|
| 10,792 |
|
|
| 15,449 |
|
|
| 2,584 |
|
|
Weighted-average Interest Rate for the Period |
|
| 6 |
| % |
| 3 |
| % |
| 3 |
| % |
Repurchases with Domestic Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| — |
| % |
| 50 |
| % |
| 27 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 2,235 |
|
|
| 1,466 |
|
|
| 4,519 |
|
|
Average Balances for Each Period |
|
| 997 |
|
|
| 620 |
|
|
| 868 |
|
|
Weighted-average Interest Rate for the Period |
|
| 49 |
| % |
| 27 |
| % |
| 25.7 |
| % |
Repurchases with Foreign Banks |
|
|
|
|
|
|
|
|
|
| — |
| % |
Weighted-average Interest Rate at End of Period |
|
| — |
| % |
| 4 |
| % |
| — |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| — |
| % |
| 5,767 |
| % |
| — |
| % |
Average Balances for Each Period |
|
| — |
| % |
| 2,827 |
| % |
| — |
| % |
Weighted-average Interest Rate for the Period |
|
| — |
| % |
| 3 |
| % |
| — |
| % |
Debt securities in pesos |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at end of year |
|
| 49 |
| % |
| 56 |
| % |
| — |
| % |
Maximum balance recorded at the monthly closing dates |
|
| 9,936 |
|
|
| 3,239 |
|
|
| — |
|
|
Average balances for each fiscal year |
|
| 5,957 |
|
|
| 249 |
|
|
| — |
|
|
Weighted average interest rate for the year |
|
| 34 |
| % |
| 55 |
| % |
| — |
| % |
Debt securities in foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at end of year |
|
| — |
| % |
| — |
| % |
| — |
| % |
Maximum balance recorded at the monthly closing dates |
|
| 4,929 |
|
|
| — |
|
|
| — |
|
|
Average balances for each fiscal year |
|
| 2,629 |
|
|
| — |
|
|
| — |
|
|
Weighted average interest rate for the year |
|
| 5 |
| % |
| — |
| % |
| — |
| % |
|
| As of December 31, |
|
| As of January 1, |
|
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
|
| |||
|
| (in millions of Pesos, except percentages) |
|
| |||||||||
Argentine Central Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| — |
| % |
| — |
| % |
| — |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 32 |
|
|
| 41 |
|
|
| 36 |
|
|
Average Balances for Each Period |
|
| 24 |
|
|
| 24 | �� |
|
| 11 |
|
|
Weighted-average Interest Rate for the Period |
|
| — |
| % |
| — |
| % |
| — |
| % |
Credit Lines from Domestic Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| 36.1 |
| % |
| 26.8 |
| % |
| 27 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 3,231 |
|
|
| 3,095 |
|
|
| 1,369 |
|
|
Average Balances for Each Period |
|
| 1,994 |
|
|
| 1,145 |
|
|
| 945 |
|
|
Weighted-average Interest Rate for the Period |
|
| 46.1 |
| % |
| 26.2 |
| % |
| 32 |
| % |
Credit Lines from Foreign Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| 2.9 |
| % |
| 2.7 |
| % |
| 3 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 16,778 |
|
|
| 6,101 |
|
|
| 2,099 |
|
|
Average Balances for Each Period |
|
| 10,043 |
|
|
| 4,176 |
|
|
| 1,517 |
|
|
Weighted-average Interest Rate for the Period |
|
| 3 |
| % |
| 3 |
| % |
| 3 |
| % |
Repurchases with Domestic Banks |
|
|
|
|
|
|
|
|
|
| — |
|
|
Weighted-average Interest Rate at End of Period |
|
| 50 |
| % |
| 27 |
| % |
| 3 |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 953 |
|
|
| 8,197 |
|
|
| 1,646 |
|
|
Average Balances for Each Period |
|
| 403 |
|
|
| 1,438 |
|
|
| 317 |
|
|
Weighted-average Interest Rate for the Period |
|
| 27 |
| % |
| 26 |
| % |
| 28.9 |
| % |
Repurchases with Domestic Banks |
|
|
|
|
|
|
|
|
|
| — |
| % |
Weighted-average Interest Rate at End of Period |
|
| 4 |
| % |
| — |
| % |
| — |
| % |
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 3,156 |
| % |
| — |
| % |
| — |
| % |
Average Balances for Each Period |
|
| 1,466 |
| % |
| — |
| % |
| — |
| % |
Weighted-average Interest Rate for the Period |
|
| 3 |
| % |
| — |
| % |
| — |
| % |
The table below shows such information for the fiscal years ended December 31, 2016 and 2015, which was prepared in accordance with Argentine GAAP.
|
| As of December 31, |
|
| |||||||
|
|
| 2016 |
|
|
| 2015 |
|
| ||
|
| (in millions of Pesos, except percentages) | |||||||||
Argentine Central Bank |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| - |
| % |
| - |
| % | ||
Maximum Balance Recorded at the Monthly Closing Dates |
|
| 35 |
|
|
| 39 |
|
| ||
Average Balances for Each Period |
|
| 11 |
|
|
| 6 |
|
| ||
Weighted-average Interest Rate for the Period |
|
| - |
| % |
| - |
| % | ||
Credit Lines from Domestic Banks |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| 26.5 |
| % |
| 29.1 |
| % | ||
Maximum Balance Recorded at the Monthly Closing Dates |
|
|
| 1,609 |
|
|
|
| 1,282 |
|
|
Average Balances for Each Period |
|
|
| 1,005 |
|
|
| 757 |
|
| |
Weighted-average Interest Rate for the Period |
|
| 31.4 |
| % |
| 26.6 |
| % | ||
Credit Lines from Foreign Banks |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| 2.6 |
| % |
| 3.5 |
| % | ||
Maximum Balance Recorded at the Monthly Closing Dates |
|
|
| 2,083 |
|
|
|
| 1,579 |
|
|
Average Balances for Each Period |
|
|
| 1,429 |
|
|
| 974 |
|
| |
Weighted-average Interest Rate for the Period |
|
| 3.0 |
| % |
| 2.9 |
| % | ||
Repurchases with Domestic Banks |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| 25.7 |
| % |
| - |
| % | ||
Maximum Balance Recorded at the Monthly Closing Dates |
|
|
| 1,646 |
|
|
| 140 |
|
| |
Average Balances for Each Period |
|
| 300 |
|
|
| 176 |
|
| ||
Weighted-average Interest Rate for the Period |
|
| 28.9 |
| % |
| 23.8 |
| % | ||
Notes |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Interest Rate at End of Period |
|
| - |
| % |
| - |
| % | ||
Maximum Balance Recorded at the Monthly Closing Dates |
|
| - |
|
|
|
| 1,024 |
|
| |
Average Balances for Each Period |
|
| - |
|
|
| 619 |
|
| ||
Weighted-average Interest Rate for the Period |
|
| - |
| % |
| 25.8 |
| % | ||
Regulatory Capital
Grupo Financiero Galicia
Grupo Financiero Galicia and its subsidiaries are regulated by the Argentine General Corporations Law. Section 186 of the General Corporations Law establishes the minimum capital amount of a corporation at Ps.100,000.
Grupo Financiero Galicia’s capital adequacy is not regulated by the Argentine Central Bank, however Grupo Financiero Galicia is required to comply with the minimum capital requirement established by the General Corporations Law. On October 8, 2012, through Decree No.1331/12, such amount was established as Ps.100,000.
Banco Galicia
With respect to regulatory capital, Banco Galicia must comply with the regulations set forth by the Argentine Central Bank. These regulations are based on the Basel Committee methodology, which provides the minimum capital requirements for financial institutions to cover the different risks inherent to its business activity and assets,such as credit risk, generated both by exposure to the private sector and to the public sector; operational risk (generated by the losses resulting from the non-adjustment or failures of internal processes) and market risk (generated by positions in securities and in foreign currency).
Computable capital is divided as follows:
- Computable regulatory capital is divided into Basic Shareholders’ Equity (Tier I Capital) and Supplementary Shareholders’ Equity (Tier II Capital). Deductible Items start to be mainly part of the Basic Shareholders’ Equity.
The following percentages apply in determining minimum capital requirements:
- Loans in Pesos to the Non-financial Public Sector: 0%.
The capital required for credit risk is calculated based on the balances as of the last day of each month. Computable capital is computed for the same month of the minimum capital requirement.
Minimum capital requirements must be met by the Bank, not only on an individual basis, but also on a consolidated basis with its significant subsidiaries.
The following table sets forth the capital required in accordance with the Argentine Central Bank regulations in force for each period indicated below.
|
| December 31, |
|
| As of January 1, |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Minimum capital required (A) |
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to Credit Risk |
|
| 22,171 |
|
|
| 1,126 |
|
|
| 554 |
|
Allocated to Market Risk |
|
| 969 |
|
|
| 2,655 |
|
|
| 2,008 |
|
Allocated to Operational Risk |
|
| 4,023 |
|
|
| 18,195 |
|
|
| 12,453 |
|
Total minimum capital required (A) |
|
| 27,163 |
|
|
| 21,976 |
|
|
| 15,015 |
|
Computable Capital (B) |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I |
|
| 36,584 |
|
|
| 6,582 |
|
|
| 5,245 |
|
Tier II |
|
| 12,745 |
|
|
| 22,803 |
|
|
| 17,762 |
|
Total computable capital (B) |
|
| 49,329 |
|
|
| 29,385 |
|
|
| 23,007 |
|
Excess over Required Capital (B)-(A)(1) |
|
| 22,166 |
|
|
| 7,409 |
|
|
| 7,992 |
|
Risk assets |
|
| 325,853 |
|
|
| 221,472 |
|
|
| 144,822 |
|
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity / Total assets |
|
| 8.60 |
|
|
| 13.32 |
|
|
| 10.14 |
|
Excess / Minimum capital required |
|
| 81.60 |
|
|
| 25.33 |
|
|
| 42.63 |
|
Total Capital Ratio(2) |
|
| 15.14 |
|
|
| 10.30 |
|
|
| 12.26 |
|
Tier I Capital Ratio |
|
| 11.23 |
|
|
| 7.32 |
|
|
| 8.64 |
|
| 77 |
|
| December 31, |
| |||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (in millions of Pesos, except percentages) | ||||||||||||
Minimum capital required (A) |
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to Credit Risk |
|
| 29,149 |
|
|
| 22,171 |
|
|
| 14,414 |
|
Allocated to Market Risk |
|
| 905 |
|
|
| 969 |
|
|
| 1,126 |
|
Allocated to Operational Risk |
|
| 7,608 |
|
|
| 4,023 |
|
|
| 2,655 |
|
Total minimum capital required (A) |
|
| 37,662 |
|
|
| 27,163 |
|
|
| 18,195 |
|
Computable Capital (B) |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I |
|
| 61,393 |
|
|
| 36,584 |
|
|
| 16,221 |
|
Tier II |
|
| 19,392 |
|
|
| 12,745 |
|
|
| 6,583 |
|
Total computable capital (B) |
|
| 80,785 |
|
|
| 49,329 |
|
|
| 22,804 |
|
Excess over Required Capital (B)-(A) |
|
| 43,123 |
|
|
| 22,166 |
|
|
| 4,609 |
|
Risk assets |
|
| 459,900 |
|
|
| 325,853 |
|
|
| 221,472 |
|
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity / Total assets |
|
| 13.07 |
|
|
| 8.60 |
|
|
| 13.32 |
|
Excess / Minimum capital required |
|
| 114.50 |
|
|
| 81.60 |
|
|
| 25.33 |
|
Total Capital Ratio(1) |
|
| 17.57 |
|
|
| 15.14 |
|
|
| 10.30 |
|
Tier I Capital Ratio |
|
| 13.35 |
|
|
| 11.23 |
|
|
| 7.32 |
|
In accordance with Argentine Central Bank rules applicable at each date
|
|
|
|
(1) Total computable capital / risk weighted assets credit, market and operational risks.
As of December 31, 2019, the Bank’s computable capital exceeded the minimum capital requirement by Ps.43,123 million (or 114.50%). The minimum capital requirement was Ps.37,662 million for 2019. As of December 31, 2018, the Bank’s computable capital exceeded the minimum capital requirement by Ps.22,166 million (or 81.60%). The minimum capital requirement was Ps.27,163 million for 2018. As of December 31, 2017, the Bank’s computable capital exceeded the minimum capital requirement by Ps.4,608 million (or 25.33%).
The minimum capital requirement increased by Ps.5,187Ps.10,499 million for the year ended December 31, 20182019 as compared to December 31, 2017,2018, mainly due to an increase related to financing balances in an amount equal to Ps.21,045Ps.6,978 million and operational risk in an amount equal to Ps.14,172Ps.3,585 million.
Computable capital increased by Ps.19,944Ps.31,456 million as compared to December 31, 2017,2018, due to an increase of Ps.30,002Ps.24,809 million in Tier I Common Capital, primarily as a result of the capital increase consummated by Grupo Galicia, and the increase in net income for the year, partially offset by deductions of capital.
Tier II Common Capital increased by Ps.10,058Ps.6,647 million as a result of the impact of the exchange rate increase on the outstanding balance of subordinated notes issued in July 2016 for an aggregate principal amount of US$250 million and the increase in the allowance for loan losses on current loan portfolios.
Regional Credit Card Companies
Tarjetas Regionales
Since the Regional Credit Card Companies Tarjetas Regionales and its subsidiariesare not financial institutions, their capital adequacy is not regulated by the Argentine Central Bank. The Regional Credit Card Companies Tarjetas Regionales and its subsidiarieshave to comply with the minimum capital requirement established by the Corporations Law, which was Ps.100,000.
Minimum Capital Requirements of Insurance Companies
The insurance companies controlled by Sudamericana must meet the minimum capital requirements set by General Resolution No.39,957 of the National Insurance Superintendency. This resolution requires insurance companies to maintain a minimum capital level equivalent to the highest of the amounts calculated as follows:
(a) By line of insurance: this method establishes a fixed amount by line of insurance. For life insurance companies, it is Ps.22.1 million, increasing to Ps.22.2 million for companies that offer pension-linked life insurance. For providers of retirement insurance that do not offer pension-linked annuities, the requirement is Ps.44.3 million. For companies that offer property insurance that includes damage
|
|
|
|
|
coverage (excluding those related to vehicles) the requirement is Ps.22.1 million (increasing to Ps.88.6 million for companies that offer all property and casualty products). (b) By premiums and additional fees: to use this method, Sudamericana must calculate the sum of the premiums issued and additional fees earned in the last 12 months. Based on the total, Sudamericana must calculate 16% of such amount. Finally, it must adjust the total by the ratio of net paid claims to gross paid claims for the last 36 months. This ratio must be at least 50%. (c) By claims: to use this method, Sudamericana must calculate the sum of gross claims paid during the 36 months prior to the end of the period under analysis. To that amount, it must add the difference between the balance of unpaid claims as of the end of the period under analysis and the balance of unpaid claims as of the 36th month prior to the end of the period under analysis. The resulting figure must be divided by three. Then Sudamericana must calculate 23%. The resulting figure must be adjusted by the ratio of net paid claims to gross paid claims for the last 36 months. This ratio must be at least 50%. (d) For life insurance companies that offer policies with an investment component, the figures obtained in b) and c) must be increased by an amount equal to 4% of the technical reserves adjusted by the ratio of net technical reserves to gross technical reserves (at least 85%), plus 0.3% of at-risk capital adjusted by the ratio of retained at-risk capital to total at-risk capital (at least 50%). |
|
|
|
|
The minimum required capital must then be compared to computable capital, defined as shareholders’ equity less non-computable assets. Non-computable assets consist mainly of deferred charges, pending capital contributions, proposed distributions and excess investments in authorized instruments.
As of December 31, 2018,2019, the computable capital of the companies controlled by Sudamericana exceeded the minimum requirement of Ps.656Ps.815,4 million by Ps.263Ps.274,9 million.
Sudamericana also owns Galicia Broker, a company dedicated to brokerage in different lines of insurance that is regulated by the guidelines of the Corporations Law, which provided for a minimum capital requirement of Ps.100,000.
Government Regulation
General
All companies operating in Argentina must be registered with the Argentine Public Registry of Commerce. In addition, any company with publicly issued equity or debt securities is subject to the rules and regulation of the CNV. Further, financial institutions, such as Grupo Financiero Galicia and Banco Galicia, are subject to Argentine Central Bank regulations. As companies listed in Argentina, Grupo Financiero Galicia and Banco Galicia must comply with the disclosure, reporting, governance and other rules applicable to such companies in the markets in which they are listed and those of regulators in the countries in which they are listed, including the Capital Markets Law (as amended by the Productive Financing Law No. 27,40027,440 and including Decree No. 471/2018), Law No.20,643, the Decrees No.659/1974 and No.2220/1980 (as amended by Decree No. 572/1996), and CNV’s General Resolution No.622/2013 (as amended and/or supplemented, the “CNV Rules”).
In their capacity as public issuers of securities, Grupo Financiero Galicia and Banco Galicia are subject to the aforementioned rules. Since Grupo Financiero Galicia has publicly listed American Depository Shares (or “ADSs”) in the United States, it is also subject to the reporting requirements of the United States Securities and Exchange Act of 1934 (the “Exchange Act”) for foreign private issuers and to the provisions applicable to foreign private issuers under the Sarbanes Oxley Act. See Item 9. “The Offer and Listing”.
Banco Galicia’s operating subsidiaries are also subject to the following laws: Law No.25,156, as amended, including Law No.27,442 (the Competition Defense Law or, in Spanish “Ley de Defensa de la Competencia”), the Emergency Decree No.
274/2019 that repeals the Fair Business Practice Law (No. 22,802) and Law No.24,240, as amended (thethe Consumer Protection Law or,No. 24,240, as amended (or, in Spanish “Ley“Ley de Protección del Consumidor”).
As a financial services holding company, we do not have a specific institution that regulates our activities. Our banking and insurance subsidiaries are regulated by different regulatory entities. The Argentine Central Bank is the main regulatory and supervising entity for Banco Galicia.
The banking industry is highly regulated in Argentina. Banking activities in Argentina are regulated by Law No.21,526, as amended (the “FIL”), which places the supervision and control of the Argentine banking system in the hands of the Argentine Central Bank. The Argentine Central Bank regulates all aspects of financial activity. See “Argentine Banking Regulation” below.
Banco Galicia and our insurance subsidiaries are subject to Law No.25,246 which was passed on April 13, 2000 (as amended, among others, by Laws No.26,087, 26,119, 26,683, 26,734, and 27,446 together to which we refer to as the Anti-Money Laundering Law), which provides for an anti-money laundering framework in Argentina, including Laws No.26,268 and 27,304, which amend Law No.25,246 to include activities associated with terrorism and Law No. 27,401, which provides for the criminal liability of corporate entities upon their direct or indirect execution of prohibited activities. Furthermore, the Anti-Money Laundering Law created the Financial Information Unit (Unidad de Información Financiera), which established an administrative criminal system, compliance monitoring and the ability to impose sanctions.
Sudamericana’s insurance subsidiaries are regulated by the National Insurance Superintendency and Laws No.17,418, as amended and modified by Law No.20,091. Galicia Broker is regulated by the National Insurance Superintendency, through Law No.22,400.
The Regional Credit Card CompaniesTarjeta Naranja and the credit card activities of Banco Galicia are regulated by Law No.25,065, as amended, including but not limited to Law No.27.444 (the “Creditthe Credit Card Law”).Law. Both the Argentine Central Bank and the Undersecretary of Domestic Trade have issued regulations to, among other things, enforce public disclosure of companies’ pricing (fees, interest rates, and advertising) in order to ensure consumer awareness of such pricing. See “Credit Cards Regulation”.
Net Investment is regulated by the Corporations Law, as previously noted, and is not regulated by any specific regulatory agency. Galicia Warrants is regulated by Law No.9,643 as amended.
On January 6, 2002, the Argentine Congress enacted Law No.25,561 (as amended and supplemented, the “Public Emergency Law” or in Spanish “Ley“Ley de Emergencia Pública”), which, together with various decrees and Argentine Central Bank rules, provided for the principal measures with which to manage the 2001-2002 financial crisis, including Asymmetric Pesification and eliminating the requirement that the Central Bank’s reserves in gold, foreign currency and foreign currency denominated debt be at all times equivalent to 100% of the monetary base, among others. The Argentine Government did not extend the term of the Public Emergency Law that was previously extended on an annual basis. On December 14, 2016, the Argentine Congress enacted Law No. 27,345, which extended the state of emergency on social matters until December 31, 2019.
On December 23, 2019, the Argentine Congress enacted Law No.27,541 (the “Social Solidarity and Productive Reactivation Law” or, in Spanish “Ley de Solidaridad Social y Reactivación Productiva”), which declared yet again a public emergency in relation to certain economic, financial, fiscal, and social matters, among others. The goal of this law is to manage Argentina’s public debt and public spending in a sustainable manner. Some of the most important aspects of the new regulation are: (i) it declares a continued public emergency across a variety of areas such as economic and financial, among others, until December 31, 2020, (ii) it increases taxes (for example, on exports of commodities or for foreign currency purchases); and (iii) it authorizes the government to use Central Bank reserves in order to make payments on the country’s public debt, among others.
Foreign Exchange Market
In January 2002, through the Public Emergency Law, Argentina declared a public emergency situation in respect of its social, economic, administrative, financial and foreign exchange matters and authorized the Argentine Executive Branch to establish a system to determine the foreign exchange rate between the Argentine Peso and foreign currencies and to issue foreign exchange-related rules and regulations.
Within this context, on February 8, 2002, through Decree No.260/No. 260/2002, as amended by Decree No. 27/2018, the Argentine Executive Branch established (i) a single and free-floating foreign exchange market (a “MULC”, or “Mercado Único y Libre de Cambios”) through which all foreign exchange transactions in a foreign currency must be conducted, and (ii) that foreign exchange transactions in a foreign currency must be conducted at the foreign exchange rate to be freely agreed upon among the contracting parties, subject to the requirements and regulations imposed by the Argentine Central Bank.
On June 9, 2005, through Decree No.616/2005, the Argentine Executive Branch mandated that inflows of funds into the MULC arising from foreign debt incurred by residents (subject to certain exceptions) and all inflows of funds of non-residents channeled through the MULC for certain concepts were required to be credited into a local account and maintained for a “Minimum Stay Period”, requiring a mandatory deposit for 30% of the amount of the transaction for a period of 365 calendar days. Such requirements were eliminated by the Macriformer administration.
As a result of the new policies, on December 28, 2015 the Argentine Central Bank issued Communication “A” 5861 and Communication “A” 5864 which specifically abrogated both Communication “A” 4864 and Communication “A” 4882. On December 29, 2015, the CNV issued Resolution No.651, which abrogated the prior CNV regulations that complemented the restrictions issued by Communication “A” 4864 and “A” 4882.
In February 2017, the former Ministry of Economy and Public Finance (Ex Ministerio de Hacienda y Finanzas Públicas)issued Resolution No.1/No. 1/2017, which reduced the “Minimum Stay Period” described above to zero days.
As of July 1, 2017, with the issuance of Communication “A” 6244, the foreign exchange rules and regulations described above were reversed. In the same sense, the Government issued Decree 27/2018 by which it modified the denomination of the “MULC”, or “Mercado Único y Libre de Cambios” to “MLC” or “Mercado Libre de Cambios”.
However, as a result of several economic measures taken in Argentina, on September 1, 2019, the Argentine Central Bank issued Communication “A” 6770, which was later amended and restated by Communication “A” 6844 (currently in force, as amended), through which the controls and restrictions on the acquisition, sale and transfer of foreign currency were (re)introduced. The main provisions which currently govern the MLC are summarized below:
Inflow of Funds:
Funds entering into Argentina from (i) the export of Argentine goods, (ii) the provisions of services to a non-resident by a resident and (iii) payments received from the sale of non-financial, non-local produced assets are required to enter through the MLC, be converted into Pesos, and be deposited into a local bank account, all within specifically prescribed periods.
Regarding offshore financial debts, the Argentine borrower receiving the foreign exchange market,funds must convert such funds into Argentine Pesos in order to be able to access the MLC in the future for the payment of principal and interest payments when due on the foreign debt.
Outflow of Funds:
Import of Goods. Communication “A” 6844, as amended byestablishes the possibility for residents to access to the MLC to pay amounts due for the import of goods. This regulation contemplates two different scenarios: (i) payments for imported goods already registered with the customs office; and (ii) payments for imported goods with a customs’ registration still pending. As a general rule, and subject to the compliance with certain requirements, financial institutions may grant access to the MLC for offshore payments for Argentine imports of goods, or other purchases of goods that were imported to Argentina. The cases that are not specifically established in the regulation are subject to prior approval of the Argentine Central Bank.
Offshore Services. Pursuant to Communication “A” 6312, are summarized below:
Access6401, financial entities may grant access to the MLC for the payment of services provided if such provision of services was previously reported, if applicable, in the last presentationof the “Foreign Exchange Market
assets and liability informative regimeAccess”. With certain exceptions, the Argentine Central Bank’s prior authorization is required to make payments for early payments, or to make payments to offshore related companies. Financial entities may also grant access to the MULCMLC for making of interest payments on offshore debt as long as the transaction was reported in the “Foreign assets and liability informative regime”. Again, the Argentine Central Bank’s prior authorization is now available to all individualsrequired for early interest payments.
Dividends and corporations for use with respect to incoming and outgoing funds to or from Argentina, irrespective of the individual’s or corporation’s domicile.EarningsConsequently, individuals and corporations may access the MULC without limitation and without the need to request prior. No authorization from the Argentine Central Bank in orderis required to among other things, make payments of principal and interest on foreign debt or for the prepayment of any debt, drawing on foreign credit facilities, making foreign investments, paying for imports of goods, paying for services abroad or entering into service contracts, making collections and payments between residents, making distributions or paying dividends abroad, and effecting the purchase or sale of non-performing financial assets.
Investments of residents abroad
Currently there are no restrictions, nor are prior authorizations required, for the purpose of making investments abroad. Residents (and non-residents) can freely access, without amount (or any other) limitations, the exchange market in order to make transfers abroad for investments.
Investments of non-residents and repatriation of funds abroad
Since current regulations no longer distinguish betweencarry out foreign exchange transactions to pay dividends and earnings to “non-residents”, provided that can bethe following requirements are met: (i) the dividends and earnings arise from closed and audited financial statements, (ii) the payment is made by residentsin accordance with the relevant corporate documents, (iii) the total amount of transfers for this reason made as of January 17, 2020 and by non-residents,onward, does not exceed 30% of the latter can also freelyvalue of new contributions of foreign direct investment in resident companies, entered and settled through the MLC as of the mentioned date, (iv) access to the foreign exchange market. As such, non-residents may make investments in ArgentinaMLC for the payment of dividends cannot occur sooner than 30 calendar days following the settlement of the last contribution(v) the payor submits sufficient documentation that evidences the final capitalization of the contributions, and may also repatriate such funds at any time and without requesting prior authorization from(vi) the payment obligation is reported to the Argentine Central Bank.Bank through the “Foreign assets and liability informative regime”.
Offshore Financial Indebtedness
Currently there are no restrictions or deadlines. Regarding offshore financial indebtedness, financial entities may only grant access to the MLC when: (i) the funds disbursed as of September 1, 2019 entered Argentina through the MLC, were converted into argentine pesos, and deposited into a local bank account(s); and (ii) the transaction has been reported, if applicable, before the Argentine Central Bank pursuant to the “Foreign assets and liability informative regime”. Regarding funds disbursed before the aforementioned date, financial entities may grant access to the MLC for the purposerepayment if the transaction has been reported before the Argentine Central Bank pursuant to the “Foreign assets and liability informative regime”.
Investment Instruments. The Argentine Central Bank ‘s prior authorization is required to access the MLC for the making of accessingforeign investments, including the MULC to enter into or to repay financial loans provided purchase of foreign currency for portfolio investments (“atesoramiento”) and the purchase of securities, by non-residents. There (i) legal entities, and non-Argentine residents (with certain exceptions -such as multilateral agencies, embassies, etc.-), for any amount; and (ii) individual residents, when the monthly sum of US$ 200 is no obligation to deposit in Argentina proceeds received from loans entered into outside of Argentina, not even as a condition to accessing the MULC in order to make payments on such loan.exceeded
In addition, there is no longer a prescribed “Minimum Stay Period” during which funds deposited in Argentina must remain in the country.
Argentine Central Bank Reporting Regime
In light of the foregoing, the Argentine Central Bank’s reporting regime has been updated as described below. Effective December 31, 2017, Communication “A” 6401 broughtintroduced reporting requirements with respect to debt securities and external liabilities offor the financial and private non-financial sector and direct investments of companies in such sector under onethe “Foreign assets and liability informative regime for “Assets and External Liabilities””. The reporting regime is divided into the following five subsections: (i) capital and mutual fund participations; (ii) non-negotiable debt instruments; (iii) negotiable debt instruments; (iv) financial derivatives; and (v) land, structures and real estate.
The completion and validation of the information corresponding to the foregoing must be done electronically through the Federal Public Revenue Administration’s website. Such information, must be reported within 180 calendar days of fiscal year end for annual statements, and within 45 calendar days as of fiscalthe first quarter of 2020, as follows: (i) at the end for quarterly statements.
Taking into accountof any calendar quarter, by all individuals and legal entities who have outstanding offshore financial indebtedness (or if cancelled during that period, when filing the above, as of December 31, 2017, an Argentine resident investor must comply with this reporting regime only if the value of its investments abroad reaches or exceeds the equivalent of US$1,000,000 (based on the net value of its total externalForeign assets and liabilities duringliability informative regime); and (ii) in an annual presentation, by those individuals or legal entities for whom the previous calendar year or the balance of holdings of external assets and liabilities at the end of the previous calendar year). If the value of such resident investor’s investments is less than the equivalent of US$1,000,000, compliance with such reporting regime is optional. Further, if the value of such resident investor’s investments abroadeach year reaches or exceeds the equivalent of US$1,000,000, but does not exceed the equivalent50 million.
| 82 |
Foreign Exchange Criminal Regime
Exchange operations can only be carried out through the entities authorized for such purposes by the Argentine Central Bank. As such, any exchangeoperation that does not comply with the provisions of the applicable regulations will be subject to the Law No. 19,359, as regulated by Decree 480/95, and Argentine Central Bank regulations (“Foreign Exchange Criminal Regime”), pursuant to whichthe following constitute offenses: (i) any foreign exchange transaction not performed before an authorized institution; (ii) the completion of foreign exchange transactions without the applicable authorization; (iii) any misrepresentation related to foreign exchange transactions; (iv) the failure to make accurate representations or to complete the necessary procedures in cases where the actual transactions are different than those declared; (v) any foreign exchange transaction executed without fulfilling the conditions established by applicable regulations, regarding quantity, foreign currency exchange rate, dates, etc.; and (vi) any other omission or act performed in violation of the Foreign Exchange Criminal Regime.
Violations to theForeign Exchange Criminal Regime which provides sanctions such as the imposition ofmay be subject to fines of up to ten times the amount of the operation in breach and imprisonment in certain instances. The Criminal Exchange Regime is regulated by Law No.19,359 and Argentine Central Bank regulations.
These rules do not prevent the application of any other applicable law for the prevention of money laundering, terrorist financing and other illegal activities.
Compensation to Financial Institutions
For the Asymmetric Pesification and its Consequences
Decree No.214/02 provided for compensation to financial institutions, for (i) losses caused by the mandatory conversion into Pesos of most of their liabilities at the Ps.1.40 per US$1.00 exchange rate (which was greater than the Ps.1 per US$1.00 exchange rate established for the conversion into Pesos of their Foreign currency-denominated assets), through the delivery of a Peso-denominated Compensatory Bond issued by the Argentine government; and (ii) the currency mismatch left on financial institutions’ balance sheets after the compulsory pesification (conversion into pesos) of certain assets and liabilities, through the conversion of the abovementioned Peso-denominated Compensatory Bond into a Foreign currency-denominated Compensatory Bond, which was achieved by the purchase of a Foreign currency-denominated Hedge Bond. For such purpose, the Argentine government established the issuance of a Foreign currency-denominated bond bearing Libor and maturing in 2012 (Boden 2012 Bonds).
The compensation procedure applicable to Banco Galicia, under the terms of Decree No.214/02, was completed in April 2007.
For Differences Related to Amparo Claims
As a result of the provisions of Decree No.1,570/01, the Public Emergency Law, Decree No.214/02 and concurrent regulations, and as a result of the restrictions on cash withdrawals and of the issuance of measures that established the pesification and restructuring of foreign-currency deposits since December 2001, a significant number of claims have been filed against the Argentine government and/or financial institutions, formally challenging the emergency regulations and requesting prompt payment of deposits in their original currency. Most courts have declared the emergency regulations unconstitutional.
Through Communication “A” 3916, dated April 3, 2003, the Argentine Central Bank allowed for the recording of an intangible asset on account of the difference between the amount paid by financial institutions pursuant to legal actions, and the amount resulting from the conversion into Pesos of the balance of the foreign currency deposits reimbursed, at the exchange rate of 1.4 Pesos per Dollar (adjusted by the CER plus accrued interest as of the payment date). In addition, it established that the corresponding amount must be amortized in 60 monthly equal and consecutive installments beginning in April 2003.
On November 17, 2005, through Communication “A” 4439, the Argentine Central Bank established that, beginning in December 2005, from the date of such regulation forward, financial institutions providing new commercial loans with an average maturity of greater than two years could defer the losses related to the amortization of amparo claims. The maximum deferrable amount was 10% of a financial institution’s RPC or 50% of the new commercial loans. Likewise, financial institutions were not able to reduce the remainder of their commercial loan portfolio. This methodology was applied until December 2008, when the balances recorded as of that date began to be amortized in up to 36 monthly equal and consecutive installments.
With respect to judicial deposits that have been subject to pesification, the Argentine Central Bank established that, beginning in July 2007, financial institutions must establish provisions in an amount equal to the difference that results from comparing such deposits’ balances at each month’s end, as measured in their original currency, and the corresponding Peso balances actually recorded on their books. Such provision, established as of December 31, 2015 and charged to income, amounted to Ps.8 million in fiscal year 2016.
During fiscal year 2010, Banco Galicia amortized the total remaining balance of the deferred losses from amparo claims for Ps.281 million.
Banco Galicia has complied with Argentine Central Bank regulations concerning the amortization of amparo claims. However, Banco Galicia reserves the right to make claims in view of the negative effect on its financial condition caused by compliance with court orders, in excess of the provisions of the above-mentioned regulations. On December 30, 2003, Banco Galicia formally requested from the executive branch of the Government, with a copy of such request sent to the former Argentine Ministry of Economy and to the Argentine Central Bank, the payment of due compensation for the losses incurred in connection with Asymmetric Pesification.
In June 2014, through Resolution No.365, the former Ministry of the Economy and Public Finance rejected an administrative claim filed by Banco Galicia. Before the due date set for said action, the Bank’s Board of Directors decided not to pursue further legal action with respect to such claim.
The following is a summary of certain matters relating to the Argentine banking system, including provisions of Argentine law and regulations applicable to financial institutions in Argentina. This summary is not intended to constitute a complete analysis of all laws and regulations applicable to financial institutions in Argentina.
General
Since 1977, banking activities in Argentina have been regulated by the Argentine Financial Institutions Law No. 21.526 (the “FIL”), which places the supervision and control of the Argentine banking system in the hands of the autonomous Argentine Central Bank, the principal monetary and financial authority in Argentina that operates independently from the Argentine government. The Argentine Central Bank enforces the FIL and grants authorization to banks to operate in Argentina. The FIL confers numerous powers to the Argentine Central Bank, including the ability to grant and revoke bank licenses, authorize the establishment of branches of Argentine banks outside of Argentina, approve bank mergers, capital increases and certain transfers of stock, set minimum capital, liquidity and solvency requirements and lending limits, grant certain credit facilities to financial institutions in cases of temporary liquidity problems and to promulgate other regulations and to enforce the FIL. The Argentine Central Bank has vested the Superintendency with most of the Argentine Central Bank’s supervisory powers. Such entity is responsible for enforcing Argentina’s banking laws, establishing accounting and financial reporting requirements for the banking sector, monitoring and regulating the lending practices of financial institutions and establishing rules for participation of financial institutions in the foreign exchange market and the issuance of bonds and other securities, among other functions. In this section, unless otherwise stated, references to the Argentine Central Bank should be understood to be references to the Argentine Central Bank acting through the Superintendency. FIL grants the Argentine Central Bank broad access to the accounting systems, books, correspondence, and other documents belonging to banking institutions. The Argentine Central Bank regulates the supply of credit and monitors the liquidity, and generally supervises the operation, of the Argentine banking system.
Current regulations equally regulate Argentine and foreign-owned banks.
Principal Regulatory Changes since 2002
On January 6, 2002, the Argentine government enacted the Public Emergency Law, as amended and supplemented, to address the 2001-2002 economic crisis in its social, economic, administrative, financial and foreign exchange matters. The principal measures taken by the Argentine government during 2002, both through the enactment of the Public Emergency Law and a series of decrees and other regulations, include the following: (i) the ratification of the suspension of payments on most public debt, with the exception of debts owed to multilateral lending agencies; (ii) the repeal of sections of the Convertibility Law (Ley de Convertibilidad) that established, since 1991, a one to one parity between the Peso and the Dollar, the devaluation of the Peso, and an exchange rate fluctuation regime, which domestically resulted in a decrease in the value of the Peso against the Dollar of around 240% during 2002; (iii) the amplification of exchange controls and restrictions on transfers abroad, which measures began to be eased towards the end of 2002; (iv) the ratification and extension of the restrictions on cash withdrawals from bank deposits that were established in December 2001 (the “corralito”), and later lifted in December 2002; (v) Asymmetric Pesification, the specific details of which are as follows: (a) foreign currency-denominated debts of individuals and companies with financial institutions were converted into debt denominated in Pesos at an exchange rate of Ps.1.00 per US$1.00 (1:1), (b) foreign currency-denominated public sector debt to the financial sector were converted into Peso-denominated debt instruments at an exchange rate of Ps.1.40 per US$1.00 (1.40:1), and (c) foreign currency-denominated bank deposits were converted into Peso-denominated bank deposits at an exchange rate of Ps.1.40 per US$1.00 (1.40:1), while foreign regulated public sector debt held by banks and companies remained denominated in foreign currencies; (vi) the modification of the return on assets and cost of liabilities “pesified” at the rate of Ps.1.40 per US$1.00 through the establishment of maximum and minimum interest rates and capital adjustments in accordance with retail price or wage change indices; (vii) the extension of the maturities of Peso-denominated time deposits and deposits originally denominated in foreign currency, above a certain amount, which established a payment schedule with maturities in 2003 or 2005, depending on whether the deposits were originally made in Pesos or Dollars (the “corralón”); (viii) the voluntary exchange of corralito or corralón deposits for Argentine government bonds (through Decree No.739/03, dated April 1, 2003, the corralón was eliminated); (ix) the amendment of the charter of the Argentine Central Bank (see “General” above); and (x) the compensation to financial institutions, through bonds issued by the Argentine government for the losses caused by asymmetric pesification. The executive branch of the Argentine government and the Argentine Central Bank have provided a set of rules for determining the amount of compensation for losses related to asymmetric pesification, although certain financial entities claim that the compensation established by such rules is not adequate to cover the losses that they have experienced.
The application of the Public Emergency Law was extended on annual basis until November 4, 2015, when the Argentine Congress extended the validity of the Public Emergency Law until December 31, 2017. On December 14, 2016, the Argentine Congress enacted Law No. 27,345, which extended the state of emergency until December 31, 2019.
Supervision
As the regulator of the Argentine financial system, the Argentine Central Bank requires financial institutions to submit information on a daily, monthly, quarterly, semiannual and annual basis. These reports, which include balance sheets and income statements, information relating to reserve funds, use of deposits, portfolio quality (including details on debtors and any established loan loss provisions) and other pertinent information, allow the Argentine Central Bank to monitor financial institutions financial condition and business practices.
The Argentine Central Bank periodically carries out formal inspections of all banking institutions in order to monitor compliance by banks with legal and regulatory requirements and confirm the accuracy of the information provided to the Argentine Central Bank. If Argentine Central Bank rules are breached, it may impose various sanctions depending on the magnitude of the infringement. These sanctions range from warning calls up to the imposition of fines, or even the revocation of the financial institution’s operating license. Moreover, non-compliance with certain rules may result in the obligatory presentation to the Argentine Central Bank of specific adequacy or regularization plans. The Argentine Central Bank must approve these plans in order for the financial institution to remain operational.
Financial institutions operating in Argentina have been subject to the supervision of the Argentine Central Bank on a consolidated basis since 1994. Information regarding “Limitations on Types of Business”, “Capital Adequacy Requirements”, “Lending Limits”, and “Loan Classification System and Loan Loss Provisions” related to a bank’s loan portfolio is calculated on a consolidated basis. However, regulations relating to a bank’s deposits are not based on consolidated information, but on such bank’s deposits in Argentina (for example, liquidity requirements and contributions to the deposit insurance system).
Examination by the Argentine Central Bank
The Argentine Central Bank began to rate financial institutions based on the “CAMEL” quality rating system in 1994. Each letter of the CAMEL system corresponds to an area of the operations of each bank being rated, with: “C” standing for capital, “A” for assets, “M” for management, “E” for earnings, and “L” for liquidity. Each factor is evaluated and rated on a scale from one to five, with one being the highest rating an entity can receive. The Argentine Central Bank modified the supervision system in September of 2000. The objectives and basic methodology of the new system, referred to as “CAMELBIG,” do not differ substantially from the CAMEL system. The components were redefined in order to evaluate business risks separately from management risks. The components used to rate the business risks are:are capital, assets, market, earnings, liquidity and business. The components to rate management risks are:are internal control and the quality of management. By combining the individual factors under evaluation, a combined index can be populated that represents the final rating for the financial institution.
After temporarily halting such examinations as a result of the 2001-2002 financial and economic crisis, the Argentine Central Bank resumed the examination process, which remains in effect as of the date of this filing. In Banco Galicia’s case, the first examination after the 2001-2002 financial crisis was based on the informationMarch 2017, and currently there is an ongoing examination as of June 30, 2005. New examinations were conducted, the last one of which was based on information as of April 30, 2013.December 2019.
Regulatory Capital (Minimum Capital Requirements)
Financial entities are subject to the capital adequacy rules of the Argentine Central Bank, consequently Banco Galicia, as a commercial bank, must maintain a minimum capital amount measured as of each month’s closing. Argentine Central Bank regulations establish that financial institutions legal capital should be equal to the greater value resulting from the comparison between the applicable basic requirement (corresponding to the type of entity) and the sum of those determined by credit and market risk, as well as operational risk.
The minimum basic capital requirement for a commercial bank located in the City of Buenos Aires, such as Banco Galicia, is a capital reserve of at least Ps.26 million. The minimum capital requirements related to credit risk, which are calculated according to a formula createdestablished by the Argentine Central Bank, are designed to establish the minimum capital necessary to offset the risk that the counterparty does not comply with its obligation in a transaction related to the assets that are being reviewed. The minimum capital requirements related to market risks are designed to offset the eventual losses generated by a change of market rates or of credit quality, which would affect the assets and liabilities of the bank. Such market risk includes (among other risks) liquidity risk and interest rate risk. Operational risk includes the possibility of incurring a failure or deficiency in losses as a result of external events or as a result of a failure or deficiency in internal processes, human error or internal systems.
Notwithstanding the foregoing, the regulatory capital of commercial banks acting as custodians of securities representing investments of the Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino must be equal to or exceed the greater of Ps.400 million or an amount equivalent to 1% of the total book value of the securities in custody.
In order to verify compliance with the minimum capital requirements, the Argentine Central Bank considers the computable regulatory capital (“RPC”) of a particular entity (i.e., capital that the entities actually have). Pursuant to the Argentine Central Bank’s regulations, a bank’s RPC is the sum of the minimum core capital (Tier I capital) and supplementary capital (Tier II capital), minus certain deductible concepts. The Argentine Central Bank considered Basel III requirements in order to regulate the RPC (and listed the assets included in each Tier as well the deductible concepts in accordance with such rules).
According to the Argentine Central Bank’s regulations, any financial institution operating with an RPC under the minimum capital requirements must: (i) pay-in the correspondent amount within the following two months from the month in which it fails to comply with the requirement, or (ii) submit to the Superintendency a regularization and reorganization plan within the following 30 calendar days counted as from the last day of the month in which it fails to comply with the requirement. The Superintendency may appoint a supervisor and impose restrictions on distribution of dividends, among other actions, when non-compliance with the RPC requirements occurs or any warning from the Superintendency is received.
In addition, any financial institution operating under the daily integration of the minimum capital requirement related to market risk (when such failure is caused by the requirements established to guard against interest rate risk, foreign exchange risk or equity price risk), must pay-in the corresponding amount necessary to comply with the requirements and/or reduce its asset position until the applicable requirement is complied with, within a term of ten business days counted from the first failure to comply with the requirements. In case the non-compliance situation remains after such term has elapsed, the entity must submit to the Superintendency a regularization and reorganization plan within the following five days.
Legal Reserve
The Argentine Central Bank and FIL rules requires that every year banks allocate to a legal reserve a percentage of their net profits established by the Argentine Central Bank, which currently amounts to 20% of their yearly income. Such reserve may only be used during periods in which such financial institution has incurred losses and has exhausted all other reserves. Distribution of dividends will not be allowed if the legal reserve is not met.
Profit Distribution
In accordance with Communications “A” 5827 (as amended), “A” 6464 (as amended) and “A” 6304 (as amended), profit distribution of financial institutions profit distribution (the concept underpursuant to which a payment of dividends is included) must be authorized by the Superintendency. The Superintendency is entitled to intervene to verify the correct application of the procedures and regulations with respect to dividends issuedapproved and to be distributed by the Argentine Central Bank.financial institutions. Nevertheless, as explained above, dividends to be paid in a foreign currency to international investors, may be subject to foreign exchange restrictions.
The Argentine Central Bank sets rules for the conditions under which financial institutions can make distributions of profits. Argentine Central Bank regulations require that 20% of a company’s profits, subject to certain adjustments, be allocated to legal reserves.
This requirement applies regardless of athe company’s ratio of legal reserves to capital stock.
In addition to the foregoing, Argentine Central Bank regulations regarding profit distributions provide that profits can be distributed so long as a company’s results of operations are positive after deducting for requirerequired legal reserves, the difference between the carrying amount and the fair market value of public sector assets and/or debtdebt instruments issued by the Argentine Central Bank not valued at fair market price, and the amounts capitalized for legal proceedings related to deposits and any unrecorded adjustments required by external auditors or the Argentine Central Bank. Furthermore, companies must also comply with capital adequacy rules, which set forth minimum capital requirements and required regulatory capital.
Effective as of January 2016, all Argentine financial institutions are also required to maintain capital in an additional capital reserve equal to 3.5% of risk-weighted assets, which is required tomust be comprised of only of Tier I Common Capital, net of deductible items. Profit distributions shallof financial institutions will be restricted when a financial institution does not havebe authorized if failing to meet with the required computable regulatory capital as set forth above.
The priorPrior authorization of the Argentine Regulatory Agency of Financial and Foreign Exchange InstitutionsCentral Bank is not be required for profit distributions, unless adistribuitons of financial institution does not haveinstitutions. Notwithstanding the required computable regulatory capital. Such restriction shall remainabove, note that in effectthe context of the COVID-19 outbreak, the Argentine Central Bank issued on March 19, 2020, Communication “A” 6939 which restricted any dividend distribution of Argentine financial institutions until March 31,June 30, 2020.
Profits, if any, resulting from the first-time application of IFRS may not be distributed. Any such profits are required towill be appropriatedallocated to a special reserve recorded under equity, which may only be released for capitalization purposes, or to otherwise to offset potential losses.
Legal Reserve Requirements for Liquidity Purposes
The deposit amount minus the minimum cash requirement determines the “lending capacity” of a particular deposit.
The Argentine Central Bank modifies the applicable minimum cash requirement from time to time depending on monetary policy considerations.
The then-applicable minimum cash requirement will be applied tois determined on the monthly averagebasis of the average daily balances of the assets, calculatedobligations: (i) recorded at the closeend of each business day, during the applicableperiod prior to their integration for Argentine Pesos; and (ii) at the end of each day during each calendar month, taken into account for the purpose of calculating “lending capacity”.foreign currency and securities.
The averages will be obtained by dividing the sum of the daily balances by the total amount of days of each month. For days in which no movement is recorded, the balance corresponding to the immediately preceding day. Compliance with minimum cash requirements must be made in the same debt currency and/or instrument that corresponds to the requirement (with certain exceptions), and might be completed through (i) checking accounts, denominated in Pesos, opened by financial entities in the Argentine Central Bank; (ii) “Minimum Cash Accounts”, denominated in dollars or other foreign currencies, opened by financial entities in the Argentine Central Bank; (iii) special guarantee accounts in favor of clearing houses and for coverage of credit cards, vouchers and ATM operations and for transfer settlement of immediate funds; (iv) non-bank financial entities checking accounts opened in commercial banks for the requirement of minimum cash integration; (v) special accounts opened in the Argentine Central Bank linked for the provision of social security benefits in charge ofadministered by National Social Security Administration (“Administración Nacional de la Seguridad Social” or ANSES) and (vi) “sub-accounts 60” which are accounts that contain a minimum amount of cash ofreceived from investments in public securities and debt instruments issued by the Argentine Central Bank, at market value.
According to Communication “A” 6341 (as modified and complemented), the percentages of minimum cash requirements applicable in accordance with Argentine Central Bank rules, are as follows:
- Demand deposits:
- Fixed term deposits:
Deficiencies of minimum cash and daily integrations in pesos are subject to a fine equivalent to twice the BADLAR rate of private banks for pesos deposits, informed for the last business day of relevant period (according to Communication “A” 5356 and modifications).
Deficiencies of minimum cash and daily integrations in foreign currency are subject to a fine equivalent to twice the private banks BADLAR rate in dollars or twice the 30-day LIBOR rate for operations in that currency, informed for the last business day of relevant period or last available, whichever is higher (according to Communication “A” 5356 and modifications).
As of December 31, 2017,2019, Banco Galicia was in compliance with its legal reserve requirements and continued to be in compliance as of the date of this annual report.
Limitations on Types of Business
In accordance with the provisions of the FIL, commercial banks are authorized to carry out all activities and operations which are not strictly prohibited by law or by the Argentine Central Bank regulations. PermittedPermitted activities include the capacity to: grant and receive loans; receive deposits from the general public in local and foreign currency; secure its customers’ debts; acquire, place and trade with shares and debt securities in the Argentine over-the-counter market (subject to prior approval of the CNV, if applicable); carry out operations in foreign currencies; act as trustee in financial trusts; and issue credit cards.
In order to calculate the legal reserves requirements for liquidity purposes described above, it is not necessary to deduct the capital stock allocated to foreign branches from a bank’s shareholders’ equity.
Pursuant to the Argentine Central Bank’s regulations, financial institutions are not allowed to hold more than a 12.5% interest (or more than a specific percentage of the financial institution’s adjusted shareholders’ equity) in the outstanding capital of a company which does not provide services complementary to those offered by financial institutions. The Argentine Central Bank determines which services are complementary to those provided by financial institutions. To date has been determined that such services mainly include those offered in connection with stock brokerage, the issuance of credit, debit or similar cards, financial intermediation in leasing and factoring transactions.
Non-banking financial institutions are not allowed to provide certain services and activities, such as opening checking accounts, among other activities.
Capitalization of Debt Instruments
Communication “A” 6304 (as amended) of the Argentine Central Bank provides that all regulations related to capital increases must be cash contributions. However, the regulation establishes that subject to the prior authorization of the Superintendency, the following instruments are allowed as capital contributions: (i) securities issued by the Argentine government, (ii) debt instruments issued by the Argentine Central Bank, and (iii) a financial institution’s deposits and other liabilities resulting from its financial brokerage activities, including subordinated obligations. With respect to instruments (i) and (ii), the contributions must be recorded at their market value. It is understood that an instrument has a market value when it is regularly listed on regulated local or foreign stock markets and traded on such markets in such amounts that the liquidation of such instruments does not significantly affect the listing price of such instruments. With respect to clause (iii) above, contributions must be recorded at their market value, as defined in the previous sentence or, in the case of financial institutions that publicly offer their stock, at the price determined by the applicable regulatory authority. If the aforementioned conditions are not met, the instruments in question will not be contributable as capital.
Deposits and other liabilities resulting from a given financial institution’s financial brokerage activities, including subordinated obligations that are not permitted to be traded in local or foreign regulated secondary markets, will be allowed to be contributed as capital at their accounting value, pursuant to Argentine Central Bank rules.
Lending Limits
The
According to the “large exposures to credit risk” and “minimum capital for financial institutions” rules, the total equity stake andamount of all credit amounts, including collateral, thatrisk exposure values of a bank is allowed to grantfinancial entity to a customersingle counterparty or, where appropriate, a group of related counterparties, may not exceed at any time is based on the bank’s adjusted shareholders’ equity as oflimits established for level capital one (Tier 1) by the last day of the immediately preceding month and on the customer’s shareholders’ equity.Argentine Central Bank.
In accordance with the Argentine Central Bank’s regulations, the exposure limit to a commercial bank shall not lendcounterpart or provide credit (“financial assistance”) in favorconnected counterpart group of nor hold shares in the capital stock of, a single unaffiliated customer (together with its affiliates) for amounts higher thannon-financial private sector will be 15% of the bank’s adjusted shareholders’ equity or 100% of the customer’s shareholders’ equity. Nevertheless, a bankBank's level one capital. However, this limit may provide additional financial assistance to such customer up to a sum equivalent tobe increased by 10% of the bank’s adjusted shareholders’ equity, if the additional financial assistance isfor exposures that are secured by certain liquid assets, including government or private debt securities.with preferred guarantees.
The total amount of financial assistance a bank is authorized to provide to a borrower and its affiliates is also limited based on the borrower’s shareholders’ equity. The total amount of financial assistance granted to a borrower and its affiliates shall not be higher than, in the aggregate, 100% of such borrower’s shareholders’ equity, although such limit may be increased an additional 200% of the borrower’s shareholders’ equity if the sum does not exceed 2.5% of the bank’s adjusted shareholders’ equity.
Global exposure to the public sector (national, provincial and municipal public sector) shall not be higher than 75% of an institution’s adjusted shareholders’ equity. Additionally, Section 12 of Communication “A” 3911, as amended, establishes that the average monthly financial assistance to non-financial public sector, in the aggregate, shall not be higher than 35% of the bank’s total assets as of the end of the previous month.
The Argentine Central Bank also regulates the level of “total financial exposure” (defined as financial assistance or credit plus equity participations) of a bank has to related parties. A party may be a “related party”. Until August 2013 by: a) control, when a related party was defined as bank’s affiliates and related individuals, “affiliate” meaning any entity over which a bank,human or legal person directly or indirectly hasexercises control is controlled by,over the bank or is under common control with, or any entity over which a bank has,controlled directly or indirectly significant influenceby the bank; or b) personal relationship, regarding individuals (including their families and any other entity which they control) who serve as directors, trustees, general managers, or managers with respect to such entity’s corporate decisions, and “related individuals” meaning bank’s directors, senior management, syndics and such persons’ direct relatives. On August 9, 2013, the Argentine Central Bank issued the Communication “A” 5472, through which the definition of related parties was modified and broadened to also include such individuals’ spouses and relatives.credit attributions.
The Argentine Central Bank limits the level of total financial exposure that a bank can have outstanding to related parties, depending on the rating granted to each bank by the Superintendency. Banks rated 4 or 5 are forbidden to extend financial assistance to related parties. For banks ranked between 1 and 3, the financial assistance without guaranteesoffered to related parties (and in the casebased on a relationship of affiliates, only if the service provided by such affiliate iscontrol and without a guarantee, may not complementary to the bank’s businesses) cannot exceed together with any equity participation held by the bank in its affiliates, 5% of such bank’s RPC.the bank's level one capital. The bank may increase its financingthis limit to such related parties up to an amount equal to 10% of such bank’s RPC if the financial assistance is secured. As
Financial assistance to related parties based on a "personal relationship" have a 5% limit of January 2019, Tier I Capital replaced RPC asLevel 1 capital of the calculation standard.entity providing the financing (the limit is unique for all cases and includes operations with and without guarantees).
However, a bank may grant additional financial assistance to such related parties up to the following limits:
a)Individual maximum limits for customers over which a bank has controlcontrol:
- Domestic financial
entities
Financial institutions rated 1, 2 or 3, subject to consolidation with the lender and its controller or the borrower:
- If the affiliate is a financial institution rated 1, the amount of total financial exposure can reach 100% of a bank’s TIER 1, and 50% for additional financial assistance
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Financial institutions that do not meet the above conditions with the lender or the borrower: 10%
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Domestic companies with complementary services
Domestic companies with complementary services associated with brokerage activities, financial brokerage in leasing and factoring operations, and temporary acquisition of shares in companies to facilitate their development in order to sell such shares afterwards
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- Controlling company rated 1: General assistance 100%
- Controlling company rated 2: General assistance 10% / Additional assistance 90%
Domestic companies with complementary services related to the issuance of credit cards, debit cards or other cards:
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- Controlling company rated 1: General assistance 100% / Additional assistance 50%
- Controlling company rated 2: General assistance 20% / Additional assistance 105%
- Controlling company rated 3: General assistance 10% / Additional assistance 40%
Domestic companies with complementary services, not subject to consolidation with the lender or the borrower: 10%
- Foreign financial entities:
Investment grade 10%
No Investment grade: Unsecured 5%; Secured 10%, with and without warrants10%
- Other counterparties related by control
Unsecured 5%; with and without warrants10%
b)Individual maximum limits for customers over which there is a personal relationship
- Lender is
ratedranked from 1 to 3: 5% of itsRPCTIER 1
In addition, the aggregate amount of a bank’s total financial exposureto its related parties, except for the ones subject to individual maximum limits higher than 10% (complementary services companies), may not exceed 20% of such bank’s RPC.TIER 1.
Notwithstanding the limitations described above, financial assistancethe sum of computable exposure is also limited in order to prevent risk concentration. To that end, the total financial exposure independently of whether customers qualify as such bank’s related parties or not, in the case in which such exposure exceeds 10% of such bank’s RPC,TIER 1, may not exceed three times the bank’s RPCTIER 1 excluding total financial exposure to domestic financial institutions, or five times the bank’s RPC,TIER 1, including such exposure.
For a second gradesecond-grade financial institution (i.e., a financial institution that provides financial products to other banks and not to retail customers), the latter limit is ten times such financial institution’s RPC.TIER 1.
Banco Galicia has historically complied with such rules.
Loan Classification System and Loan Loss Provisions
General
Banco Galicia is required to comply with the Argentine Central Bank regulations.Inregulations. In 1994, the Argentine Central Bank introduced the current loan classification system and the corresponding minimum loan-loss provision requirements applicable to loans and other types of credit (together, referred to as “loans”) to private sector borrowers.
The current loan classification system applies certain criteria to classify loans in a bank’s “consumer” portfolio, and another set of criteria to classify loans in its “commercial” portfolio. The classification system is independent of the currency in which the loan is denominated.
The loan classification criteria applied to loans in the consumer portfolio is based on objective guidelines related to the borrower’s credit score, legal status, and other information provided by credit rating agencies. However, if a borrower has defaulted on loans in the past or is non-current on obligations, a lower rating is assigned by the Bank. In the event of any discrepancy, the guidelines indicating the higher risk level should be considered.
For the purposes of the Argentine Central Bank’s regulations, consumer loans are defined as mortgage loans, pledge loans, credit card loans and other types of loans in installments granted to individuals. All other loans are considered commercial loans. In addition, in accordance with an option set forth in these regulations, Banco Galicia prospectively applies the consumer portfolio classification criteria to commercial loans of up to Ps.2.5 million. This classification is based on the level of fulfillment and the situation thereof.
The main classification criterion for loans in the commercial portfolio is each borrower’s ability to pay, mainly in terms of such borrower’s future cash flows. If a customer has both commercial and consumer loans, all of these loans will be considered as a whole to determine eligibility for classification in the corresponding portfolio. Loans backed with preferred guarantees will be considered at 50% of their face value.
By applying the Argentine Central Bank’s classification to commercial loans, banks must assess the following factors: the current and projected financial situation of the borrower, the customer’s exposure to currency risk, the customer’s managerial and operating background, the borrower’s ability to provide accurate and timely financial information, as well as the overall risk of the sector in which the borrower operates and the borrower’s relative position within that sector.
The Argentine Central Bank’s regulations also establish that a team independent from the departments responsible for credit origination must carry out a periodic review of the commercial portfolio. Banco Galicia’s Credit Division, which is independent from the business units that generate transactions, is responsible for these reviews.
The review must be carried out on each borrower with debt pending payment equal to the lesser of the following amounts: Ps.12.5 million or 1% of the bank’s computable capital (the “RPC”) but, in any case, the review shall cover at least 20% of the total loan portfolio. The frequency of the review of each borrower depends on the bank’s exposure to that borrower. The Argentine Central Bank requires that the larger the exposure is, the more frequent the review should be. This review must be conducted every calendar quarter when credit exposure to that borrower is equal to or in excess of 5% of the bank’s RPC, or every six months when exposure equals or exceeds the lesser of the following amounts: Ps.12.5 million or 1% of the bank’s RPC. In all cases, at least 50% of Banco Galicia’s commercial portfolio must be reviewed once every six months; and all other borrowers in Banco Galicia’s commercial portfolio must be reviewed during the fiscal year, so that the entire commercial portfolio is reviewed every fiscal year.
In addition, only one level of discrepancy is permitted between the classification assigned by a bank and the lowest classification assigned by at least two other banks whose combined credit to the borrowerborrower represents 40%
or more of the total credit of the borrower, considering all banks. If Banco Galicia’s classification was different by
more than one level from the lowest classification granted, Banco Galicia must immediately downgrade its classification of the debtor to the same classification level, or else within one classification level.
Loan Classification
The following tables contain the six loan classification categories corresponding to the different risk levels set forth by the Argentine Central Bank. Banco Galicia’s total exposure to a private sector customer must be classified according to the riskier classification corresponding to any part of such exposure.
Commercial Portfolio
Loan Classification |
| Description |
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A. Normal Situation |
| The debtor is widely able to meet its financial obligations, demonstrating significant cash flows, a liquid financial situation, an adequate financial structure, a timely payment record, competent management, available information in a timely, accurate manner and satisfactory internal controls. |
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B. With Special Follow-up |
| Cash flow analysis reflects that the debt may be repaid even though it is possible that the customer’s future payment ability may deteriorate without a proper follow-up. |
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| This category is divided into two subcategories: |
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| B1. Under Observation; |
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| B2. Under Negotiation or Refinancing Agreements. |
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C. With Problems |
| Cash flow analysis evidences problems to repay the debt, and therefore, if these problems are not solved, there may be some losses. It also includes customers that maintain payment agreements resulting from judicial or extrajudicial agreements approved by the relevant insolvency court. |
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D. High Risk of Insolvency |
| Cash flow analysis evidences that repayment of the full debt is highly unlikely. It also includes customers who have been sued by the creditor financial institution for the payment of amounts due or that have requested the preventive tender or concluded and extrajudicial preventive agreement not yet approved by the relevant insolvency court. |
|
|
|
E. Uncollectible |
| The amounts in this category are deemed total losses. Even though these assets may be recovered under certain future circumstances, inability to make payments is evident at the date of the analysis. It includes loans to insolvent or bankrupt borrowers. |
|
|
|
F. Uncollectible due to Technical Reasons |
| Loans to borrowers indicated by the Argentine Central Bank to be in non-accrual status with financial institutions that have been liquidated or are being liquidated, or whose authorization to operate has been revoked. It also includes loans to foreign banks and other institutions that are not: |
|
| (i) classified as “normal”; |
|
| (ii) subject to the supervision of the Argentine Central Bank or other similar authority of the country of origin; |
|
| (iii) classified as “investment grade” by any of the rating agencies admitted pursuant to Communication “A” 2729 of the Argentine Central Bank. |
Consumer Portfolio
Loan Classification |
| Description |
|
|
|
A. Normal Situation |
| Loans with timely repayment or arrears not exceeding 31 days, both of principal and interest. A customer classified in “Normal” situation that has been refinanced more than twice in the last twelve months in this category, must be re-classified in “Low-Risk”. |
|
|
|
B. Low Risk |
| Occasional late payments, with a payment in arrears of more than 32 days and up to 90 days. A customer classified as |
|
|
|
Limitation on Fees and Other Substantial Elements
The Argentine Central Bank has issued regulations limiting amounts that entities can charge as credit card fees, as well as fees that can be charged for financial services rendered by financial entities, credit card issuers (and other similar entities). Such regulations provide that such fees must be duly justified from a technical and economic point of view and must be in relation to the total financial costs incurred by any such financial institution. Further, such Laws provide that applicable interest rates must be set forth.
In addition, such regulations provide that in order to modify fees and other conditions established in agreements executed by and between financial entities and consumers, the following requirements must be met (i) reasons for fees increases must be established in the agreements and must be duly justified; (ii) modifications cannot change the core or fundamental provisions of the agreement; (iii) the consumer must be duly informed of any such changes; and (iv) for the imposition of new fees, the consumer’s consent must be obtained.
On March 26, 2020, in the context of the COVID-19 outbreak, the Argentine Central Bank issued Communication “A” 6945 which suspended the ability of banks to charge fees for the use of automatic teller machines (“ATMs”) until June 30, 2020. Also, as part of the protective measures taken, the Argentine Central Bank has imposed an injunction on the payment of loans granted to the private sector, as per Communications “A” 6949 and “A” 6964, among other regulations. The Argentine Central Bank has also mandated that (i) any payments due between April and June 2020 for loans previously granted by financial entities are deferred until the month following the loan’s maturity date; and (ii) credit card debts due between March 20 and April 30 of 2020 and not paid by the credit card issuer will be automatically refinanced at least for a one-year term, pursuant to the following terms and conditions: (a) a 3-month grace period must be given to the debtor; (ii) the amount owed must be repaid in 9 equal and consecutive installments, and (iii) the maximum annual interest rate the creditor may charge is of 43%.
Foreign Currency General Position
The Foreign Currency General Position of a financial institution (defined as the assets and liabilities arising from financial intermediation and securities denominated in foreign currency) usedPursuant to be limited by the Argentine Central Bank regulations. Currently, since the enactment of Communication “A” 62446844, as amended, financial entities may determine their own Foreign Currency General Position.Position, with certain limitations: (i) Overall net negative FX position - this position may not exceed 30 % of the computable assets of the prior corresponding month and (ii) Overall net positive FX position - this daily position may not exceed 5 % of the computable assets of the prior corresponding month, and it can be increased to 30% if certain requirements are met.
Deposit Insurance System
In 1995, Law No.24,485 and Decree No.540/95, as amended, created a mandatory deposit insurance system for bank deposits and delegated to the Argentine Central Bank the organization and start-up of the deposit insurance system. The deposit insurance system was implemented through the creation of a fund named Fondo de Garantía de los Depósitos (“FGD”), which is administered by Seguros de Depósitos S.A. (“Sedesa”). The shareholders of Sedesa are the Argentine government, through the Argentine Central Bank, which holds at least one share, and a trust constituted by the financial institutions which participate in the fund.
The Argentine Central Bank establishes the extent of participation by each institution in proportion to the resources contributed by each such institution to the FGD. Banks must contribute to the FGD on a monthly basis in an amount that is currently equal to 0.015% of the monthly average of daily balances of such institution’s deposits (both Peso- and foreign currency-denominated).
In addition, when the contributions to the FGD reach the greater of Ps.2 billion or 5.0% of total deposits, the Central Bank may suspend or reduce the monthly contributions and reinstate the same when contributions fall below such required level.
The deposit insurance system covers all Peso and foreign currency deposits held in demand deposit accounts, savings accounts and time deposits for an amount up to Ps.450,000Ps.1,000,000 per person, account and deposit. Certain deposits are not covered by the guarantee of the deposit insurance system, such as deposits received at rates higher than the reference rate in accordance with the limits established by the Argentine Central Bank, deposits acquired by endorsement, and those made by persons related to the financial institution (as defined by Argentine Central Bank regulations). The Argentine Executive Branch through Decree No.1127/98 established the maximum amount for this insurance system to demand deposits and time deposits denominated either in Pesos and/or in foreign currency. Such limit was set at Ps.1,000 as of March 1, 2019.
The guarantee provided by the deposit insurance system must be made effective within 30 days from the revocation of the license of a financial institution, subject to the outcome of the exercise by depositors of their priority rights described under “—Priority Rights of Depositors” below. The Argentine Central Bank may modify, at any time, and with general scope, the amount of the mandatory deposit guarantee insurance.
Decree No.1292/96 enhanced Sedesa’s functions by allowing it to provide equity capital or make loans to Argentine financial institutions experiencing difficulties and to institutions that buy such financial institutions or their deposits. As a result of such decree, Sedesa has the flexibility to intervene in the restructuring of a financial institution experiencing difficulties prior to bankruptcy.
Debt securities issued by banks are not covered by the deposit insurance system.
Priority Rights of Depositors
According to section 49(e) of the FIL, in the event of a judicial liquidation or the bankruptcy of a financial entity, the holders of deposits in Pesos and foreign currency benefit from a general priority right to obtain repayment of their deposits up to the amount set forth below, with priority over all other creditors, with the exception of the following: (i) deposits secured by a mortgage or pledge, (ii) rediscounts and overdrafts provided to financial entities by the Argentine Central Bank, according to section 17 subsections (b), (c) and (f) of the Argentine Central Bank Charter, (iii) credits provided by the Banking Liquidity Fund, which was created by Decree No.32, dated December
26, 2001, secured by a mortgage and pledge and (iv) certain labor credits, including accrued interest until the date of their total repayment.
The holders of the following deposits are entitled to the general preferential right established by the FIL (following this order of preference):
- deposits of individuals or entities up to Ps.50,000, or the equivalent thereof in foreign currency, with only one person per deposit being able to use this preference. For the determination of this preference, all deposits of the same person registered by the entity are computed;
According to the FIL, the preferences set forth in previous paragraphs (i) and (ii) above are not applicable to deposits held by persons who are affiliates of the financial entity, either directly or indirectly as determined by the Argentine Central Bank.
In addition, pursuant to Section 53 of the FIL, the Argentine Central Bank has an absolute priority over all other creditors of the entity, except as provided by the FIL.
Deposit and Loans in Housing Units
In order to facilitate access to mortgage loans, through Communication “A” 5945, dated as of April 8, 2016, and complementary regulations, the Argentine Central Bank established a new type of loan denominated in housing unitsAcquisition Value Units (Unidad de Valor Adquisitivo or “UVAs”). The value of such housing units will be updated using the Reference Stabilization Coefficient. The initial value of the UVA was Ps.46.86,Ps.47.16, representing the cost of construction of one thousandth square meter of housing as of December 31, 2018.2019.
Financing Loans for Economic Development
The Argentine Central Bank hasenacted Communication “A” 6901 and Communication “A” 6916, by means of which it implemented several policies in order to promote economic development and productivity in Argentina, pursuant Argentina. As from March 1, 2020, the required minimum cash to which certainbe held by financial institutions arewas reduced in an amount equivalent to 30% of the sum of outstanding financing granted in local currency to small and medium companies, provided such financing is granted at a maximum annual interest rate of (i) 40% until February 16, 2020, and (ii) 35% February 17, 2020 onwards. Also through Communication “A” 6916, the Argentine Central Bank reduced the required minimum cash to allocatebe held by financial institutions on an amount equivalent to 35 % (capped on a certain percentage46% of fundsthe computable assets of the previous month) of the sum of credit card financings granted in local currency under the program “Ahora 12”. The Ahora 12 program allows credit cards users to financing their purchases in 12 monthly installments at no interest.
On another note, as a result of the COVID-19 outbreak, the Argentine Central Bank issued Communication “A” 6937, effective as of March 20th, 2020, which set forth the following:
(i)The holding of liquidity bonds issued by the Argentine Central Bank (“LELIQs” for specific investments, suchits Spanish acronym) by financial institutions that exceed the holdings allowed for the integration of the minimum cash requirement in pesos, may not exceed: (a) a sum equal to 90% of the exceeding holdings registered up to April 30, 2020; and (b) the following as providingof May 20:
Percentage of permitted “potential” finance to small and medium companies | Permitted excess holding (as a percentage of those registered as of (03/19/2020) |
100% | 90% |
< from 100 % up to 75 % | 85% |
< from 75 % up to 50 % | 80% |
< from 50% up to 25 % | 75% |
< from 25 % | 70% |
(ii) Moreover, the Argentine Central Bank reduced the required minimum cash to be held by financial institutions to grant financing to SMEssmall and investment projects. The Argetine Central Bank established new requirements with respect tomedium companies on a 40% (capped on a 4% of the computable assets of the previous month), provided that such requirementsfinancing has a maximum interest rate of 24% and at least 50% of such financing is used for 2018 in Communication “A” 6352, dated November 3, 2017.working capital expenses.
Financial Institutions with Economic Difficulties
The FIL establishes that financial institutions, including commercial banks such as Banco Galicia, which evidence a deficiency in their cash reserves, have not complied with certain required technical standards, including minimum capital requirements, or whose solvency or liquidity is deemed to be impaired by the Argentine Central Bank, must submit a restructuring plan to the Argentine Central Bank. Such restructuring plan must be presented to the Argentine Central Bank on the date specified by the Argentine Central Bank, which should not be later than 30 calendar days from the date on which the request is made by the Argentine Central Bank. In order to facilitate the implementation of a restructuring plan, the Argentine Central Bank is authorized to provide a temporary exemption from compliance with technical regulations and/or the payment of charges and fines that arise from such non-compliance.
The Argentine Central Bank may also, in relation to a restructuring plan presented by a financial institution, require such financial institution to provide guarantees or limit the distribution of profits, and appoint a supervisor, to oversee such financial institutions’ management, with the power to veto decisions taken by the financial institution’s corporate authorities.
In addition, the Argentine Central Bank’s charter authorizes the Superintendency, subject only to the prior approval of the president of the Argentine Central Bank, to suspend for up to 30 days, in whole or in part, the operations of a financial institution if its liquidity or solvency have been adversely affected. Notice of this decision must be given to the board of directors of the Argentine Central Bank. If at the end of such suspension period the Superintendency considers renewal necessary, such renewal can only be authorized by the board of directors of the Argentine Central Bank for an additional period not to exceed 90 days. During the suspension period: (i) there is an automatic stay of claims, enforcement actions and precautionary measures; (ii) any commitment increasing the financial institution’s liabilities is void; and (iii) acceleration of indebtedness and interest accrual is suspended.
If, in the judgment of the Argentine Central Bank, a financial institution is in a situation which, under the FIL, would authorize the Argentine Central Bank to revoke the financial institution’s license to operate as such, the Argentine Central Bank may, prior to considering such revocation, order a variety of measures, including (i) taking steps to reduce, increase or sell the financial institution’s capital; (ii) revoking the approval granted to the shareholders of the financial institution to own an interest therein, giving a term for the transfer of such shares; (iii) excluding and transferring assets and liabilities; (iv) constituting trusts with part or all the financial institution’s assets; (v) granting of temporary exemptions to comply with technical regulations and/or pay charges and fines arising from such defective compliance; or (vi) appointing a bankruptcy trustee and removing statutory authorities.
Furthermore, any actions authorized, commissioned or decided by the Argentine Central Bank under Section 35 of the FIL involving the transfer of assets and liabilities, or complementing such transfers, or that are necessary to execute the restructuring of a financial institution, as well as those related to the reduction, increase or sale of equity, are not subject to any court authorization and cannot be deemed inefficient in respect of the creditors of the financial institution which was the owner of the excluded assets, even though its insolvency preceded any such actions.
Dissolution and Liquidation of Financial Institutions
The Argentine Central Bank must be notified of any decision to dissolve a financial institution pursuant to the FIL. The Argentine Central Bank, in turn, must then notify a court of competent jurisdiction, which will determine who will liquidate the entity: the corporate authorities (extrajudicial liquidation) or an appointed independent liquidator (judicial liquidation). This determination is based on whether or not sufficient assurances exist regarding the ability of such corporate authorities to carry out the liquidation properly.
Pursuant to the FIL, the Argentine Central Bank no longer acts as liquidator of financial institutions. However, when a restructuring plan has failed or is not considered viable, local and regulatory violations exist, or substantial changes have occurred in the financial institution’s condition since the original authorization was granted, the Argentine Central Bank may decide to revoke the license of the financial institution to operate as such. In this case, the law allows judicial or extrajudicial liquidation as in the case of voluntary liquidation described in the preceding paragraph.
The bankruptcy of a financial institution cannot be adjudicated until the license is revoked by the Argentine Central Bank. No creditor, with the exception of the Argentine Central Bank, may request the bankruptcy of the former financial institution before 60 calendar days have elapsed since the revocation of its license.
Credit Cards Regulation
The Credit Cards Law establishes the general framework for credit card activities. Among other regulations, this law:
- sets a
2.35%2.15% cap on the rate a credit card company can charge merchants for processing customer card holders’ transactions with such merchants, calculated as a percentage of the customers’ purchases. With respect to debit cards, the cap is set at1.1%1.0% and the amounts relating to the customers’ purchases should be processed in a maximum of three business days;
The Argentine Central Bank has issued regulations to enforce public disclosure of companies’ pricing (fees and interest rates) to ensure consumer awareness of such pricing.Inpricing. In addition, during 2014 the Argentine Central Bank issued a series of regulations in order to establish caps on interest rates on personal loans, pledge loans and credit card loans, as well as to establish a requirement for an authorization to increase fees. Through its Communication “A” 5853, dated December 17, 2015, the Argentine Central Bank rescinded regulations related to limits on interest rates in respect of lending transactions.
Concealment and Laundering of Assets of a Criminal Origin
Law No.25,246 (as amended in July 2011 by Law No.26,683) incorporates money laundering as a crime under the Argentine Criminal Code. Additionally, with the goal of preventing money laundering, the UIF was
created under the jurisdiction of the Argentine Ministry of Justice, Security and Human Rights. As a result of such modification, money laundering is now classified as a separate offense.
In addition to the above, Law No.26,683 punishes “self-laundering”, which punishes money laundering tied to a crime the individual in question committed his or herself. It also includes certain tax offenses described in Article 303 of the Argentine Penal Code as punishable laundering behavior. The new standard falls under Article 303 of the Argentine Penal Code in the chapter titled “Crimes against economic and financial order”.
The minimum and maximum of the criminal scale will be doubled when (i) the foregoing acts were crimes that are particularly serious, meaning those crimes with a punishment that is greater than three years of imprisonment; (ii) the perpetrator committed the crime for profit; and (iii) the perpetrator regularly performs concealment activities.
The criminal scale can only be increased once, even when more than one of the above-mentioned acts occurs. In such case, the court may take into consideration the multiple acts when determining the original punishment.
The “Committee for the Control and Prevention of Money Laundering and the Financing of Terrorist Activities” was formed in 2005 and is responsible for establishing and maintaining the general guidelines related to the Bank’s strategy to control and prevent money laundering and the financing of terrorism. For more information, see “Item 6. Directors, Senior Management and Employees—Functions of the Board of Directors of Banco Galicia”.
Banco Galicia has also appointed two directors to fulfill the roles of Compliance Officer and Substitute Compliance Officer. In addition, a specialized management unit was created in this area that is responsible for the execution of the policies approved by the committee and for the monitoring of the control systems and procedures to ensure that they are adequate.
Law No.26,734 enacted on December 22, 2011, incorporated terrorism financing and the financing of terrorism as an aggravating circumstance to all criminal conduct in the Argentine Criminal Code.
Such law punishes any individual who directly or indirectly collects or provides goods or money with the intention of being used, or knowing that they will be used, in whole or in part (i) to finance a crime with the purpose established in Section 41.5; (ii) for an organization who commits or attempts to commit crimes with the purpose established in Section 41.5; and (iii) for a person who commits or attempts to commit or participates in any way in committing crimes with the purpose established in Section 41.5.
The new legislation also punishes terrorism as an aggravating factor in other punishable crimes when any such offense was committed in order to terrorize the population.
The Bank has implemented measures to combat the use of the international financial system by criminal organizations. The Bank has policies, procedures and control structures in place to monitor operations based on client profiles and risk assessments based on the information and documentation related to the economic, patrimonial and financial situation of each client to detect clients that could be considered unusual, and eventual reporting to the UIF as appropriate. The Asset Laundering Prevention Management program is charged with the implementation of such control and prevention procedures, as well as communication of such procedures and measures within the Bank, drafting of compliance manuals and employee training. Such management program is also periodically reviewed by senior management.
The Bank has appointed a Director as Compliance Officer, in accordance with Resolution 30/2017 of the UIF, who is responsible for ensuring the observance and implementation of procedures and obligations in the matter. The Compliance Officer contributes to the prevention and mitigation of the risks of criminal transactions and is involved in the establishment of internal policies and measures to monitor and prevent the same.
The following table illustrates our organizational structure as of December 31, 2018.2019. Percentages indicate the ownership interests held by each entity.
The following are our main property assets, as of December 31, 2018:2019:
Property |
| Address |
| Square meters |
|
| Main uses | |
Grupo Financiero Galicia |
|
|
|
|
|
|
|
|
Rented |
| Tte. Gral. Juan D. Perón 430, 25th floor, Buenos Aires, Argentina |
| 89 |
|
| Administrative activities | |
Banco Galicia |
|
|
|
|
|
|
|
|
Owned |
| Tte. Gral. Juan D. Perón 407, Buenos Aires, Argentina |
|
|
|
|
| Administrative activities |
|
| Tte. Gral. Juan D. Perón 430, Buenos Aires, Argentina |
|
|
|
|
| Administrative activities |
|
| Corrientes 6287, Buenos Aires, Argentina |
|
|
|
|
| Administrative activities |
Tarjeta Naranja |
|
|
|
|
|
|
|
|
Owned |
| Sucre 152, 154 and 541, Córdoba, Argentina |
|
|
|
|
| Administrative activities |
|
| La Tablada 451, Humberto Primo 450 y 454, Córdoba, Argentina |
|
|
|
|
| Administrative activities |
|
| Jujuy 542, Córdoba, Argentina |
| 853 |
|
| Administrative activities | |
|
| Ruta Nacional 36, km. 8, Córdoba, Argentina |
|
|
|
|
| Storage |
|
| Río Grande, Tierra del Fuego, Argentina |
| 309 |
|
| Administrative and commercial activities | |
|
| San Jerónimo 2348 and 2350, Santa Fe, Argentina |
|
|
|
|
| Administrative and commercial activities |
Rented |
| Sucre 145/151, La Rioja 359, 364 and 375, Córdoba, Argentina |
|
|
|
|
| Administrative activities |
|
| Av. Corrientes 3135, CABA, Argentina |
|
|
|
|
| Administrative activities |
Galicia Warrants |
|
|
|
|
|
|
|
|
Owned |
| Tte. Gral. Juan D. Perón 456, 6th floor, Buenos Aires, Argentina |
| 118 |
|
| Administrative activities | |
|
| Alsina 3396/3510, San Miguel de Tucumán, Tucumán, Argentina |
|
|
|
|
| Storage |
Rented |
| Alto Verde, Chicligasta, Tucumán, Argentina |
|
|
|
|
| Storage |
|
| Ruta Nº 301- Acceso Famaillá, Tucumán, Argentina |
|
|
|
|
| Storage |
Galicia Seguros |
|
|
|
|
|
|
|
|
Owned |
| Maipú 241, Buenos Aires, Argentina |
|
|
|
|
| Administrative activities |
As of December 31, 2018,2019, our distribution network consisted of:
- Banco Galicia:
325326 branches, located throughout Argentina’s 23 provinces,148149 of which were owned and 177 of which were leased by Banco Galicia.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
The following discussion and analysis isare intended to help you understand and assess the significant changes and trends in our historical results of operations and the factors affecting our resources. You should read this section in conjunction with our audited consolidated financial statements and their related notes included elsewhere in this annual report.
Overview
In recent years, we have strengthened our position as a leading domestic private-sector financial institution, increasing our market share of loans and deposits and strengthening Banco Galica’sGalicia’s regulatory capital reserves through the issuance of subordinated bonds and follow-on equity offerings, the sale of CFA and internal profit origination.
Despite the deterioration of the Argentine economy, reduction in Argentine GDP, high levels of inflation and the devaluation of the Peso, in 2018,2019 we were able to increase our market share of deposits and loans, maintain our asset quality and adequately cover credit risks and maintain liquidity and profitability metrics at reasonable levels.
FiscalWith the development of the COVID-19 outbreak, which was alerted by the Chinese government in December 2019, many countries have suspended the business operations of many sectors of their economies, implemented travel restrictions and quarantine measures. Argentina has not been an exemption to this rule. The current administration has closed the borders of the country until further notice and has imposed a lock down form March 20, 2020 to May 10, 2020 (which could be extended if the government considers it necessary), allowing only the continuity of businesses considered essential for the local economy.
On March 26, 2020, in the context of the COVID-19 outbreak, the Argentine Central Bank issued Communication “A” 6945 which suspended the ability of banks to charge fees for the use of automatic teller machines (“ATMs”) until June 30, 2020. The Argentine Central Bank has also mandated credit card debts due between March 20 and April 30 of 2020 and not paid by the credit card issuer will be automatically refinanced at least for a one-year term and relaxed the delinquency days and default terms for the benefit of the borrowers. In addition, with the aim of increasing the financial resources available in the economy, the Argentine Central Bank has suspended banks’ ability to distribute dividends until June 30, 2020.
Our business and prospects are subject to risks associated with and arising from the outbreak of COVID-19, and the uncertainty of the impacts, duration and severity of the outbreak. This global pandemic creates substantial uncertainty as to the Bank’s ability to achieve its financial projects and how it may affect its business operations.
On another note but connected to the impact COVID-19 may have on how we operate our business, we have conducted a business impact analysis as part of our Business Continuity Program. The results of this analysis show that critical business functions will remain operative upon the occurrence of a disruptive event. In cases of mass absenteeism events, the analysis conducted identified the minimum quantity of personnel and positions needed to remain operative, being the leader of the relevant sector responsible for assigning personnel to such critical positions. New employees will be hired and current employees will be relocated to guarantee that critical functions remain operative, if and where needed.
Considering the mentioned above, fiscal year 20192020 is expected to be a challenging year of transition as a result of presidential electionsthe change in October 2019government, the uncertainty related to the evolution of the sovereign debt restructuring process, the impact of COVID-19 and residual macroeconomic imbalances in a volatile global economy, all of which could negatively impact the Argentine economy.
The Argentine Economy
The Argentine economy
In 2019, global stock indices managed to recover over the marked generalized drops at the end of the previous year. This was affectedexplained mainly by international political andthe deepening of expansive monetary policies by the major Central Banks of the world, as well as the solid economic factors in 2018, including aggressive trade policies promulgated byindicators of the United States and in particular with China. MonetaryWith regard to monetary policies, implemented by central banks worldwide also affected international markets. For example,particularly the Federal Reserve of the United States joined the trend of the major Central Banks as a consequence of the turbulence towards the end of 2018 and inflation indicators in the country that began to fall significantly below the Federal reserve’s target. After increasing the range of interest rates four times in 2018, the Federal Reserve of the United States reduced rates by 25 basis points (bp) on three consecutive occasions (July, September and October), to a range from 1.5% to 1.75%. Later, at the last meeting of the year, the Federal Reserve of the United States claimed that this monetary policy stance was appropriate and the members of its committee projected stability in the rate range until 2021. Meanwhile, in 2019 the US unemployment rate fell to its minimum level in over 50 years, and economic activity remained driven by domestic consumption, although mitigated by a slowdown in the growth of the industrial activity. In addition, on average during 2019, US companies in all industries continued to raise interestconsistently deliver revenues that surpassed industry estimates. Still, since the global spread
of the COVID-19 in early 2020, the Federal Reserve held unscheduled meetings and decided to reduce its rates in 2018by a total of 150 bps to a range from 0.0% to 0.25%, while unemployment rate started to pick up and ascompanies’ results of operations reflected the impact of a result, led a gradual decrease in growth rates. The volatility of financial markets, as well as some turbulence in emerging economies have also raised concerns among investors, thereby contributing to such decrease.significantly lower global demand.
In 2018,contrast, global economic growth slowed down in general terms during 2019 highlighting the Dollarfall of the industrial activity in the Eurozone and a greater uncertainty in commercial terms. During 2019, trade conflicts between the United States, both with China and with the European Union, continued to escalate, while the resolution of the “Brexit” plan added uncertainty. Finally, towards the end of the year, China and the United States confirmed the approval of the first phase of a potential trade agreement to be signed in January 2020, including commitments of structural changes by China and lower fees by the counterparty. Likewise, the Prime Minister of the United Kingdom obtained the support of members of Parliament in favor of a bill for existing the EU, which bill became effective as of January 31, 2020, and set December 31, 2020, as the end of the transition period.
In this context, the DXY dollar index, which reflects the strength of the US dollar in relation to a basket of currencies representative of US foreign trade, increased only by 0.2%, while the dollar appreciated 3.9% and 10.5% vis-à-vis the currencies of other developed economies andby 1.4% as compared to the currencies of emerging economies,countries. Meanwhile, in line with the reductions in the range of Federal Reserve of the United States reference rates, the 2- and 10-year treasury rates compressed 92 bp and 77 bp, respectively, as comparedand the spread between both rates reached negative levels by the end of August 2019.
On the other hand, shares reflected significant increases that mainly affected developed markets with a rise of 24.0% and, to 2017. In addition, the two-year Treasury rose by 581 bps, while the 10-year Treasury rose by 254 bps, resulting in a flattened spread of 11 bps between the 10 and two-year Treasuries. Stocks performed poorly both in developed andlesser extent, emerging markets, during 2018.including a 15.4% increase in the respective indexes. The main stock indexes in the United States showed increases of 28.9% for the S&P 500 decreased 6.7%,&P500, 22.3% in the Dow Jones Industrial Average decreased 6.1%and 35.2% in the case of Nasdaq. Meanwhile, stock exchanges increased by 24.8% in Europe (EuroStoxx50), and the Nasdaq 100 decreased 4.5%rise was of 19.8% in Japan (Nikkei). The EuroStoxx50 decreased 14.8% and Japan’s Nikkei 225 Index decreased 12.1%
Commodity prices increased after marked drops in 2018, as compared to 2017.
In 2018, commodity prices also decreasedincluding a 9.4% rise in the general index, accelerating towards the end of the year. The greater dynamism was explained in part by 8.3% as compared to 2017, crudethe optimism around the first phase of a potential trade agreement between China and the United States. Among others, a 25.6% rise in the price of oil decreasedwas highlighted, after a 24% duringdrop in the last quarter of 2018, driven by geopolitical conflicts that at times reduced supply and increased both uncertainty and risk of transportation, as well as a resultsurprise drop in US inventories in December. Additionally, significant increases in precious metals generated greater uncertainty, including increases of 18.3% and 15.2% in the price of gold and silver, respectively. Meanwhile, wheat and soybeans rose 0.9% and 6.9%, respectively, reversing falls observed in the most part of the expected increaseyear, in contrast to a 4.7% drop in the supplyprice of American shale oil andcorn.
At the diminishmentdomestic level, in 2019 Argentina continued to exhibit a poor economic performance, mainly associated with exchange rate volatility, which was in turn a consequence of global growth. There were also significant decreases in industrials such as aluminum and copper (-19% and -18%, respectively).the political uncertainty. The valueeconomy had shown a drop of wheat increased 17%2.5% in 2018, whereas soy and corn decreased 6.7% and 5%, respectively.private estimates reflect for 2019 an economic contraction around 2.2% (official data reported by the INDEC until September 2019 accumulated a drop-in activity of 2.5%).
Argentina’s economy continued to grow during the first quarter of 2018 (+2.9%). However, volatile markets abroad and domestically led to a net contraction
In terms of the Argentine economylabor market, the deterioration observed in 2018 (-2.5%).the economic activity had an impact on employment dynamics. The unemployment rate for the third quarter of 2019 – the last available data as of the date hereof - amounted to 9.7% of the economically active population, compared to 9.0% in Argentina reached 9%the same quarter of 2018.
On the monetary level, the main aggregates grew below inflation, falling in real terms. The monetary base ended 2019 with an interannual expansion of 34.5%, 6.2 percentage points (p.p.) below year-on-year growth at the end of 2018. In particular, this monetary aggregate expanded by Ps.486,404 million, which is mainly explained by the quarter ended September 31, 2018.
Inaccrual of interest for Ps.692,713 million and transfers to the monetary sphere,National Treasury for a total of Ps.204,245 million (Ps.350,000 on cash advances and Ps.204,245 million from the main monetary aggregates accelerated their pace, although still standing below the nominal growthremittance of the economy. According to data provided by the Central Bank, the monetary base recorded a 40.7% expansion in 2018, 18.9% over the growth recorded in 2017.2018’s dividends). This monetary aggregate increased by Ps.407,864 million, primarily as a result of the repurchase of Lebacs in an amount equal to Ps.1,296,076 million. Thisissue was partially offset by the issuanceplacement of LELIQs1-day repurchase transactions and Central Bank Liquidity Bills (LELIQ) for a total of Ps.451,967 million and FX sales to the private sector and the National Treasury (absorbing Ps.271,361 million). Private M2 (comprised of the currency held by the Central Bank in an amount equal to Ps.709,470 million. This trend was not reflected in the performancepublic, savings banks and checking accounts of the private-sectorprivate sector) also grew below inflation, registering an expansion of 41.9% as of December 2019 with respect to the same period of 2018. Total M2 (money in circulation, and deposits in checking and savings accounts), which grew 36.9% in 2018. The M2 total (including(also includes deposits from the public sector) expanded 23%, after increasing by 25.6% in 2017.ended 2019 with an interannual expansion of 29.4%.
DomesticWith respect to the dynamics of domestic interest rates, shifted with changes to expectations in pricesthey exhibited strong volatility throughout the year, accompanying the evolution of the monetary policy rate. Although between the beginning of January and the foreign exchange market. Until May 2018, both expected depreciation andend of February there was a cut in the interest rates were kept relatively stable, butrate of the upward pressure on theLELIQ, which went from 59.41% to 43.94%, then it was increased to deal with exchange rate duringpressures. In addition, after the second halfprimary elections, the reference rate showed a jump of 2018 marked an important increase22 p.p, reaching levels of 85.99% in mid-September, then being cut gradually and closing the rates. Particularly,year at a level of 55.00%. The BADLAR rate accompanied the Badlarfluctuations of the reference rate, was 49.5% asreaching 39.44% at the end of December 31, 2018, as compared to 23.43% as of December 31, 2017.December.
The reference exchange rate established by theof Argentine Central Bank increased form Ps.18.77went from Ps.37.81 to Ps.37.81Ps.59.90 per Dollardollar, between December 29, 2017 and December 28, 2018 and December 30, 2019 (equivalent to a 101% depreciation), whilean increase in the exchange rate of 58.4%). The average exchange rate increased form Ps.16.57went from Ps.37.89 in 2017December 2018 to Ps.28.09Ps.59.93 in 2018.December 2019.
The national CPINational Consumer Price Index published by the INDEC reflected a 47.6% increaseclosed the year 2019 in consumer prices inter-annually, considerably53.8% per year, 6.2 p.p. above 2017 levels (24.8%)the 2018 inflation (47.6% per year). This acceleration was primarily a resultlargely due to the depreciation of the exchange rate, crisis.to which the corrections in the rates of public services were added during the first half of the year.
In the
On a fiscal area,level, during 2019 tax revenues,resources - including social security recorded a growth of 28.4% inter-annually,- grew 48.2%, compared to a 22.6% inter-annual growththe interannual (i.a.) expansion of 25.6% in 2017. In turn,2018. Meanwhile, the primary expenditures increasedexpanded 37.2%, above 22.4% of the accumulated rate by 22.4%, slightly aboveDecember of the 21.8% level of 2017.previous year. Thus, the Argentine publicnational private sector achievedregistered a primary deficit of Ps.95,122 million, equivalent to -0.4% of the GDP. This figure indicated an improvement compared to the 2018 primary deficit of Ps.338,987 million (-2.3 p.p. of the GDP). After the payment of interest for Ps.724,285 million, the financial deficit of 2019 amounted to Ps.819,407 million, equivalent to 2.4%3.8% of the GDP. However, there was an extraordinary revenue during 2019, coming from selling certain assets. If this revenue is not computed, the primary deficit was 0.96% of the GDP reflecting an improvement as compared to 2017 (3.8%), amounting to Ps.404,142 million. After interest payments for Ps.388,940 million,and the financial deficit amounted to Ps.727,927 million, or equal4.3%.
In relation to 5.1% of GDP.
Regarding the external sector, during 2018 the Foreign Exchange Balance Current Accountin 2019 exchange balance’s current account published by the Argentine Central Bank (on(cash base) recorded a cash basis) reached asurplus of US$11,3296,277 million, deficit, a reduction asan improvement compared to US$17,052 millionthe deficit registered in 2017. Thethe same period of 2018, that had amounted to US$11,329 million. Measured in relation to the GDP, the current account deficit, measuredsurplus was about 1.4% in terms2019, showing an improvement compared to the 2.1% red of the INDEC’s official GDP, stood at about 2.1%, reflecting anprevious year.
The improvement as compared to 2017. According to the Central Bank, this improvements resulted fromobserved in nominal terms was basically a consequence of higher net income from assetsgoods (US$8,32323,444 in 2018, as compared to2019 against US$4,0288,323 million in 2017)2018) and lower net expenses fromfor services (US$9,4605,482 in 2018, as compared to2019 against US$10,8479,460 million in 2017)2018). Exports amounted toIn particular, income from collections of goods exports totaled in 2019 US$50,99857,747 million, for the year ended December 31, 2018, a 13% decrease as13.2% increase compared to the year ended December 31, 2017. Meanwhile,level observed in the previous year. For its part, the import payments for importedof the exchange balance sheet goods amounted to US$42,67534,303 million, forregistering an interannual contraction of 19.6%.
In this context, the year ended December 31, 2018, a decreaseprincipal and financial account of 21.8% as compared to the year ended December 31, 2017.
The non-financial private sector capital accountexchange balance sheet recorded a net foreign currency outflow of US$29,01532,401 million asin 2019, a figure that is compared to a net foreign currency outflowincome of US$4,61715,866 million in 2017. The2018. For its part, the International Reserves of the Argentine Central Bank’s international currency reservesBank amounted to US$65,80644,781 million, asUS$21,025 million below to what was observed by the end of December 28, 2018, an increase of US$10,751 million as compared to December 31, 2017.2018.
The Argentine Financial System
Total loans provided to the private sector inby the financial system amountedclimbed to Ps.2,133,175Ps.2,460,218 million asin December 2019, reflecting a 15.6% increase over the same month of December 31, 2018,2018. Consumer loans, consisting of loans granted through credit cards and personal loans, presented the greatest growth, a 32.8 %21.9% increase as compared to December 31, 2017. Mortgage loans had the most significant increase, amounting to Ps.224,4092018, totaling Ps.985,658 million as of December 31, 2018,2019. On the other hand, commercial loans, consisting of current account overdrafts and drafts/bills (signature and purchased/discounted loans), finally totaled Ps.980,919 million, registering an increase of 12.5% year-on-year (YoY). Mortgage loans, which were growing above the total a 67.7%year ago, registered a 6.0% increase compared toin 2019, totaling Ps.237,675 million by the same dateend of the previous year. Commercial loans, comprised by overdrafts for checking account and notes (promissory notes and purchased/discounted notes), increased 36.5% in 2018 as compared to 2017, amounting to Ps.872,220 million as of December 31, 2018. Consumer credit lines comprised of loans through credit cards and personal loans, increased 23.8% in 2018 as compared to 2017, amounting to Ps.812,340 million as of December 31, 2018.
Total deposits in the financial system increased 66.1 % in 2018climbed to Ps.4,777,159 million as of the end of December 2019, up by 18.6% as compared to 2017, amounting to Ps.4,028,100 million as of December 31, 2018,2018. Deposits from the non-financial private sector increased 61.1% in 2018 as compared25.3%
annually, climbing to 2017, amounting to Ps.3,137,477Ps.3,935,726 million, while deposits from the public sector increased 87.3% in 2018 as compared to 2017, amounting to Ps.854,675deposits totaled Ps.757,545 million, as of December 31, 2018.down by 11.6% YoY. Within deposits from the private sector transactional deposits, increased 52.6 % in 2018 as compared to 2017, amounting to Ps.1,776,615transaction deposits ended at Ps 2,281,213 million, while timea 28.3% hike YoY, and term deposits increased 77.2 % in 2018 as compared to 2017, amounting to Ps.1,276,823 million.ended at Ps.1,541,756 million, a 20.6% annual growth.
In December 2019, the average interest rate paid byfor 30-35-day term deposits in Argentine pesos from private banks as(over Ps.1 million) was 41.8%, registering an interannual drop of December 2018 for time deposits6.8 p.p. Regarding active rates, the one corresponding to advances in Pesos of 30 to 35 dayscurrent account was 48.6%, an inter-annual increase of 25.4% as compared to December 2017. In the case of lending rates, the
average interest rate applicable to checking account overdrafts was 70.8 %, an increase of 36.7% as compared to December 2017.66.5% (-4.3 p.p. YoY).
Including
With data as of December 2018,2019, financial institutions increased their liquidity levels (in relation to total deposits) as compared to the same periodmonth of 2017,the previous year, a ratio that stood at 56%60.1%, an increase of 14% inter-annually.
The net worth+3.5 p.p. (considering repurchase transactions and instruments of the Argentine Central Bank).
In terms of solvency, the equity of the financial system increased by Ps.184,807 million during 2018, amounting to Ps.575,138,showed an interannual increase of 47.3% in 2018Ps.290,288 million, finally totaling Ps.900,925 million, which implies a 47.5% increase. The profitability of the system (accumulating 12 months as compared to 2017. As of December 2018,2019 was equivalent to 5.2% of assets (+1.1 p.p. YoY), while the Argentine financial system’s profitability was equal to 3.8% of total assets, an increase of 0.8% in 2018 as compared to 2017, while return on shareholders’ equity amounted to 34.1%, an increase of 8.3% in 2018 as compared to 2017.Shareholders’ Equity was 44.9% (+8.8 p.p. YoY).
As of December 2018, income from interest and income from services amounted to 10.8% and 2.2% of total assets, respectively. In 2018, administrative expenses decreased to 6.3 % of total assets (a 83 bps decrease as compared to the same period in 2017), while provisions for loan losses amounted to 1.3 % (a 28 bps increase as compared to the same period in 2017).
The non-accrual loannonperforming portfolio of loans to the non-financial private sector reached 2.9%amounted to 5.7% in December 2018, a 117 bps increase as compared to December 2017.The coverage2019, greater than the 2.6% of the previous year. Hedging with allowances for private sector non-accrual loan portfolio with allowances reached 122%nonperforming loans was 96%, a 29% decrease as compared to December 2017.24 p.p. lower than the measurement reported in the same month of 2018.
As for the composition of the financial system, as of December 31, 2018, the financial system was comprised of2019, there were 78 financial institutions: 63 banks, 50 of which 50 were private (34 domestically-ownedof domestic capital and 16 foreign-owned)foreigners) and 13 government-owned banks, in addition towere public, and 15 non-banking financial institutions.
The concentration of the financial system, measured by the market share ofin private sector deposits of the top ten leading banks, reached 78.8%77.8% as of December 31, 2018, 1.5 bps higher2019, 1.0 p.p. less than the percentage recordedone registered in the same month of 2018 (78.8%).
With data as of December 2019, the latest information available, the financial system employed 106,043 people, which represented a 1.8% drop since December 31, 2017.2018.
Based on information as of September 30, 2018, the Argentine financial sector employed 108,737 people, a 1.3% decrease as compared to September 30, 2017.
The Argentine Insurance Industry
According to the information published by the Superintencia de Seguros de la Nación, the insurance industry continued to grow throughout 2018.2019. The total gross premiums in respect of property, life, and retirement insurance for such period was equal to Ps.391,719Ps.534,630 million, an increase of 30%36% as compared to 2017.2018.
During 2018,2019, the automotive and workers’ compensation insurance sectors were affected by high inflation and an increase in the filing of claims for compensation. Although inflation is not decreasing as expected, financial income is expected to cover any increased costs as a result of the foregoing.
Home, life and personal accident insurance policies increased by 39%32% year-over-year. It is expected that this segment will continue to increase as the Argentine economy stabilizes. During this period, Galicia Seguros has maintained positive financial results. As of December 31, 2018,2019, Sudamericana Holding, primarily through its main subsidiary Galicia Seguros reported a net income equal to Ps.535Ps.623 million. This result includes Ps.5,588 million comprised of insurance premiums and surcharges (related to both direct insurance and reinsurance).
Inflation
Historically, inflation in Argentina has played a significant role in influencing, often negatively, the economic conditions in Argentina and, in turn, the operations and financial results of companies operating in Argentina, such as Grupo Financiero Galicia.
In fiscal year 2015, due to changes in the authorities at the Institute of Statistics, the Wholesale Price Index and CPI series were discontinued beginning in October 2015. The Wholesale Price Index was republished beginning January 2016. A new CPI series was launched in May 2016, but did not contain historical information.
The chart below presents a comparison of inflation rates published by INDEC, measured by the Whole Price Index and the CPI, for the fiscal years 2019, 2018 2017 and 2016. In 2016, annual variation of the CPI was calculated using the CPI of the City of Buenos Aires, an alternative measure of inflation proposed by INDEC after it discontinued its index.2017.
In addition, the chart below presents the evolution of the CER and UVA indexes, published by the Argentine Central Bank and used to adjust the principal of certain of our assets and liabilities for the specified periods.
|
| For the Year Ended December 31, | ||||
|
| 2018 |
| 2017 |
| 2016 |
|
| (in percentages) | ||||
Price Indices (1) (2) |
|
|
|
|
|
|
WPI |
| 73.50 |
| 18.80 |
| 34.59 |
CPI |
| 47.65 |
| 24.80 |
| 41.05 |
Adjustment Indices |
|
|
|
|
|
|
CER |
| 47.16 |
| 22.62 |
| 35.79 |
UVA(3) |
| 46.86 |
| 21.15 |
| 17.26 |
(1) Data for December of each year as compared to December of the immediately preceding year. (2) Unidad de Valor Adquisitivo (Acquisition Value Unit). |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
In 2018,2019, the CPI published by INDEC reflected a 47.65%53.83% increase, while the CER and UVA indexes went up 47.16%51.56% and 46.86%51.84% during the same period, respectively.
In the first two monthsmonth of 2019, the CPI published by INDEC reflected a 6.8%2.3% increase, while the CER and UVA indexes increased by 5.6%3.99% and 4.01% respectively, during the same period.
Currency Composition of Our Balance Sheet
The following table sets forth our assets and liabilities denominated in foreign currency, in Pesos and adjustable by the CER/UVA, as of the dates indicated.
|
| As of December 31, |
|
| As of January 1, |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2017 |
| |||
|
| (In millions of Pesos) |
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
In Pesos, Unadjusted |
|
| 350,429 |
|
|
| 356,240 |
|
|
| 326,657 |
|
In Pesos, Adjusted by the CER/UVA |
|
| 18,457 |
|
|
| 6,152 |
|
|
| 1,288 |
|
In Foreign Currency (1) |
|
| 200,806 |
|
|
| 127,249 |
|
|
| 122,669 |
|
Total Assets |
|
| 569,692 |
|
|
| 489,641 |
|
|
| 450,614 |
|
Liabilities and Stakeholder´s Equity |
|
|
|
|
|
|
|
|
|
|
|
|
In Pesos, Unadjusted, Including Shareholders’ Equity |
|
| 366,042 |
|
|
| 361,459 |
|
|
| 325,760 |
|
In Pesos, Adjusted by the CER/UVA |
|
| 3,207 |
|
|
| 933 |
|
|
| 182 |
|
In Foreign Currency (1) |
|
| 200,443 |
|
|
| 127,249 |
|
|
| 124,672 |
|
Total Liabilities and Shareholders’ Equity |
|
| 569,692 |
|
|
| 489,641 |
|
|
| 450,614 |
|
(1)If adjusted to reflect forward sales and purchases of foreign exchange made by Grupo Financiero Galicia and recorded off-balance sheet, assets amounted to Ps.231,419 and liabilities Ps.231,396 million as of December 31, 2019. |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Funding of Banco Galicia’s long position in CER/UVA-adjusted assets through Peso-denominated liabilities bearing a market interest rate (and no principal adjustment linked to inflation) exposes Banco Galicia to differential fluctuations in the inflation rate and in market interest rates, with a significant increase in market interest rates vis-à-vis the inflation rate (which is reflected in the CER/UVA variation), which has a negative impact on our gross brokerage margin.
Two other currencies have been defined apart from the Argentine Peso: assets and liabilities adjusted by CER/UVA and foreign currency. Banco Galicia’s policy in force establishes limits in terms of maximum “net asset positions” (assets denominated in a currency which are higher than the liabilities denominated in such currency) and “net liability positions” (assets denominated in a currency which are lower than the liabilities denominated in such currency) for mismatches in foreign currency, as a proportion of Banco Galicia’s RPC, on a consolidated basis.
An adequate balance between assets and liabilities denominated in foreign currency characterizes the management strategy for this risk factor, seeking to achieve full coverage of long-term asset-liability mismatches and allowing a short-term mismatch management margin that contributes to the possibility of improving certain market situations. Short- and long-term goals are attained by appropriately managing assets and liabilities and by using the financial products available in our market, particularly “dollar futures” both in institutionalized markets (MAE and ROFEX) and in forward transactions performed with customers.
Transactions in foreign currency futures (specifically, Dollardollar futures) are subject to limits that take into consideration the particular characteristics of each trading environment.
Results of Operations for the Fiscal Years Ended December 31, 2019 and December 31, 2018 and December 31, 20172017.
We discuss below our results of operations for the fiscal year ended December 31, 2019 as compared with our results of operations for the fiscal year ended December 31, 2018 and our results of operations for the fiscal year ended December 31, 2018 as compared with our results of operations for the fiscal year ended December 31, 2017.
Consolidated Income Statement
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Consolidated Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Interest |
|
| 33,364 |
|
|
| 29,874 |
|
|
| 12 |
|
Interest Income |
|
| 78,274 |
|
|
| 54,694 |
|
|
| 43 |
|
Interest Expenses |
|
| (44,910 | ) |
|
| (24,820 | ) |
|
| 81 |
|
Net Fee Income |
|
| 20,238 |
|
|
| 22,146 |
|
|
| (9 | ) |
Fee Income |
|
| 23,264 |
|
|
| 25,399 |
|
|
| (8 | ) |
Fee Related Expenses |
|
| (3,026 | ) |
|
| (3,253 | ) |
|
| (7 | ) |
Net Income from Financial Instruments |
|
| 17,353 |
|
|
| 8,461 |
|
|
| 105 |
|
Gold and Foreign Currency Quotation Differences |
|
| 3,777 |
|
|
| 3,479 |
|
|
| 9 |
|
Other Operative Income |
|
| 11,793 |
|
|
| 8,997 |
|
|
| 31 |
|
Underwriting Income from Insurance Business |
|
| 2,869 |
|
|
| 3,315 |
|
|
| (13 | ) |
Loan and Other Receivables Loss Provisions |
|
| (16,300 | ) |
|
| (7,294 | ) |
|
| 123 |
|
Net Operating Income |
|
| 73,094 |
|
|
| 68,978 |
|
|
| 6 |
|
Personnel expenses |
|
| (17,026 | ) |
|
| (17,089 | ) |
|
| — |
|
Administrative Expenses |
|
| (16,079 | ) |
|
| (14,424 | ) |
|
| 11 |
|
Depreciations and Impairment of Assets |
|
| (1,652 | ) |
|
| (1,439 | ) |
|
| 15 |
|
Other Operating Expenses |
|
| (16,899 | ) |
|
| (14,605 | ) |
|
| 16 |
|
Loss on Net Monetary Position |
|
| (18,064 | ) |
|
| (6,823 | ) |
|
| 165 |
|
Operating Income |
|
| 3,374 |
|
|
| 14,598 |
|
|
| (77 | ) |
Share of Profit from Associates and Joint Ventures |
|
| — |
|
|
| 321 |
|
|
| (100 | ) |
Income Tax from Continuing Operations |
|
| (6,913 | ) |
|
| (7,319 | ) |
|
| (6 | ) |
Net Income from Discontinuing Operations |
|
| (291 | ) |
|
| (322 | ) |
|
| (10 | ) |
Net (Loss) / Income for the Year |
|
| (3,830 | ) |
|
| 7,278 |
|
|
| (153 | ) |
(Loss) / Income for the Year Attributable to GFG |
|
| (3,466 | ) |
|
| 6,794 |
|
|
| (151 | ) |
(Loss) / Income for the Year Attributable to Non-controlling Interests |
|
| (364 | ) |
|
| 484 |
|
|
| (175 | ) |
Other Comprehensive Income |
|
| (87 | ) |
|
| (435 | ) |
|
| (80 | ) |
Total Comprehensive Income (Loss) |
|
| (3,917 | ) |
|
| 6,843 |
|
|
| (157 | ) |
Total Comprehensive Loss Attributable to GFG |
|
| (3,553 | ) |
|
| 6,359 |
|
|
| (156 | ) |
Total Comprehensive Loss Attributable to Non-controlling Interests |
|
| (364 | ) |
|
| 484 |
|
|
| (175 | ) |
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets |
|
| (0.61 | ) |
|
| 1.39 |
|
|
| (200 | ) |
Return on Average Shareholders’ Equity |
|
| (5.76 | ) |
|
| 10.53 |
|
|
| (1,629 | ) |
|
| For the Year Ended December 31, |
|
| Change (%) |
| |||||||||||
|
| 2019 |
| 2018 |
| 2017 |
|
| 2019/2018 |
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except otherwise noted) |
| ||||||||||||||
Consolidated Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Interest |
|
| 34,830 |
|
| 51,324 |
|
| 45,956 |
|
|
| (32 | ) |
| 12 |
|
Interest Income |
|
| 130,506 |
|
| 120,411 |
|
| 84,137 |
|
|
| 8 |
|
| 43 |
|
Interest Expenses |
|
| (95,676 | ) |
| (69,087 | ) |
| (38,181 | ) |
|
| 38 |
|
| 81 |
|
Net Fee Income |
|
| 28,083 |
|
| 32,875 |
|
| 32,563 |
|
|
| (15 | ) |
| 1 |
|
Fee Income |
|
| 35,145 |
|
| 37,530 |
|
| 37,567 |
|
|
| (6 | ) |
| — |
|
Fee Related Expenses |
|
| (7,062 | ) |
| (4,655 | ) |
| (5,004 | ) |
|
| 52 |
|
| (7 | ) |
Net Income from Financial Instruments |
|
| 72,830 |
|
| 26,694 |
|
| 13,016 |
|
|
| 173 |
|
| 105 |
|
Income from Derecognition of Assets Measured at Amortized Cost |
|
| 220 |
|
| 341 |
|
| — |
|
|
| (35 | ) |
| — |
|
Exchange Rate Differences on Gold and Foreign Currency |
|
| 8,691 |
|
| 5,810 |
|
| 5,352 |
|
|
| 50 |
|
| 9 |
|
Other Operating Income |
|
| 21,132 |
|
| 16,059 |
|
| 15,344 |
|
|
| 32 |
|
| 5 |
|
Income from Insurance Business |
|
| 3,673 |
|
| 4,414 |
|
| 5,099 |
|
|
| (17 | ) |
| (13 | ) |
Loan and Other Receivables Loss Provisions |
|
| (22,203 | ) |
| (25,074 | ) |
| (11,220 | ) |
|
| (11 | ) |
| 123 |
|
Net Operating Income |
|
| 147,256 |
|
| 112,443 |
|
| 106,110 |
|
|
| 31 |
|
| 6 |
|
Personnel expenses |
|
| (24,449 | ) |
| (26,192 | ) |
| (26,288 | ) |
|
| (7 | ) |
| — |
|
Administrative Expenses |
|
| (24,317 | ) |
| (24,735 | ) |
| (22,188 | ) |
|
| (2 | ) |
| 11 |
|
Depreciations and Impairment of Assets |
|
| (5,064 | ) |
| (2,541 | ) |
| (2,214 | ) |
|
| 99 |
|
| 15 |
|
Other Operating Expenses |
|
| (25,770 | ) |
| (25,996 | ) |
| (22,468 | ) |
|
| (1 | ) |
| 16 |
|
Loss on Net Monetary Position |
|
| (30,798 | ) |
| (27,788 | ) |
| (10,496 | ) |
|
| 11 |
|
| 165 |
|
Operating Income |
|
| 36,858 |
|
| 5,191 |
|
| 22,456 |
|
|
| 610 |
|
| (77 | ) |
Share of Profit from Associates and Joint Ventures |
|
| — |
|
| — |
|
| 494 |
|
|
| — |
|
| (100 | ) |
Income Tax from Continuing Operations |
|
| (13,038 | ) |
| (10,634 | ) |
| (11,259 | ) |
|
| 23 |
|
| (6 | ) |
Net Income from Discontinuing Operations |
|
| — |
|
| (448 | ) |
| (495 | ) |
|
| 100 |
|
| 9 |
|
Net Income (Loss) for the Year |
|
| 23,819 |
|
| (5,891 | ) |
| 11,196 |
|
|
| 504 |
|
| (153 | ) |
Net Income (Loss) for the Year Attributable to Parent Company´s Owner |
|
| 23,708 |
|
| (5,332 | ) |
| 10,451 |
|
|
| 545 |
|
| (151 | ) |
Net Income (Loss) for the Year Attributable to Non-controlling Interests |
|
| 111 |
|
| (559 | ) |
| 745 |
|
|
| 120 |
|
| (175 | ) |
Other Comprehensive Income (Loss) |
|
| 403 |
|
| (135 | ) |
| (669 | ) |
|
| 399 |
|
| 80 |
|
Total Comprehensive Income (Loss) |
|
| 24,222 |
|
| (6,026 | ) |
| 10,527 |
|
|
| 502 |
|
| (157 | ) |
Total Comprehensive Income (Loss) Attributable to Parent Company´s Owners |
|
| 24,111 |
|
| (5,467 | ) |
| 9,782 |
|
|
| 541 |
|
| (156 | ) |
Total Comprehensive Income (Loss) Loss Attributable to Non-controlling Interests |
|
| 111 |
|
| (559 | ) |
| 745 |
|
|
| 120 |
|
| (175 | ) |
Ratios (%) |
|
|
|
|
|
|
|
|
|
|
| Change (pbs) |
| ||||
Return on Assets |
|
| 3.46 |
|
| (0.61 | ) |
| 1.39 |
|
|
| 407 |
|
| (200 | ) |
Return on Shareholders’ Equity |
|
| 20.81 |
|
| (5.76 | ) |
| 10.53 |
|
|
| 2,657 |
|
| (1,629 | ) |
v |
|
|
|
|
|
|
|
|
|
|
| Change (%) |
| ||||
Basic Earnings per Share (in Pesos) |
|
| 16.62 |
|
| (3.74 | ) |
| 7.32 |
|
|
| 545 |
|
| (151 | ) |
Fiscal Year 2019 compared to Fiscal Year 2018
Net income for the fiscal year ended December 31, 2019 was equal to Ps.23,819 million, as compared to net loss equal to Ps.5,891 million for the fiscal year ended December 31, 2018, a Ps.29,710 million, or 504% increase. This result was mainly due to net income from: (i) banking activities (Banco Galicia) for Ps.22,283 million, (ii) Tarjetas Regionales for Ps.653 million and (iii) insurance services (Sudamerica Holding) for Ps.634 million.
Net earnings per share for the fiscal year ended December 31, 2019 was equal to a Ps.16.62 per share gain, as compared to a Ps.3.74 per share loss for the fiscal year ended December 31, 2018.
The return on assets and the return on shareholders’ equity for the fiscal year ended December 31, 2019 was equal to a 3.46% gain and 20.81% gain, respectively, as compared to a 0.61% loss and 5.76% loss, respectively, for the fiscal year ended December 31, 2018.
The increase in net income for the year ended December 31, 2019 was primarily attributable to a higher net operating income, from Ps.112,443 million to Ps.147,256 million (a 31% increase as compared to December 31, 2018), and was partially offset by (i) a Ps.3,010 million increase loss on net monetary position, increasing from Ps.27,788 million in 2018 to Ps.30,798 million in 2019, and (ii) a Ps.2,523 million increase in depreciation and impairment of assets, increasing from Ps.2,541 million in 2018 to Ps.5,064 million in 2019.
The increase in net operating income from the year ended December 31, 2019 was mainly attributable to (i) a Ps.46,136 million increase in net income from financial instruments, from Ps.26,694 million in 2018 to Ps.72,830 million in 2019, (ii) a Ps.10,095 million increase in interest income from Ps.120,411 million in 2018 to Ps.130,506 million in 2019, and (iii) a Ps.5,073 million increase in other operating income from Ps.16,059 million in 2018 to Ps.21,132 million in 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Net loss for the fiscal year ended December 31, 2018 was equal to Ps.3,830Ps.5,891 million, as compared to net income equal to Ps.7,278Ps.11,196 million for the fiscal year ended December 31, 2017, a Ps.11,108Ps.17,087 million, or 153% decrease. Such decreaseThis result was primarily attributable to:
a Ps.11,241mainly due to net loss (i) from banking activities (Banco Galicia) for Ps.3,150 million, increase in loss on net monetary position,and (ii) from Ps.6,823Tarjetas Regionales for Ps.3,291 million to Ps.18,064 million, and
a Ps.9,006 million increase in loan and other receivables loss provisions, from Ps.7,294 million to Ps.16,300 million.
Such changes werewas partially offset by:
a Ps.8,892 million increase inby net income from financial instruments, from Ps.8,461 millionactivities related to Ps.17,353 million, and
a Ps.3.490 million increase in net income from interest, from Ps.29,874 million to Ps.33,364insurance services (Sudamerica Holding) for Ps.310 million.
Net earningsloss per share for the fiscal year ended December 31, 2018 was equal to a Ps.2.43Ps.3.74 per share, loss, as compared to a Ps.4.76Ps.7.32 per share gain for the fiscal year ended December 31, 2017.
The return on average assets and the return on average shareholders’ equity for the fiscal year ended December 31, 2018 was equal to a 0.61% loss and 5.76%5.76 % loss, respectively, as compared to a 1.39% and 10.53% gain,, respectively, for the fiscal year ended December 31, 2017.
The decrease in
This net loss for the year ended December 31, 2018 was mainly the resultattributable to (i) a low growth of net operating income (6% increase compared to previous year) and (ii) a 165% increase in loss on net monetary position.
The result of a Ps.17,292 million increase in loss on net monetary position was attributable to higher inflation levelslevels.
The Ps.6,333 million increase in net operating income was mainly attributable to (i) a Ps.36,274 million increase in interest income from Ps.84,137 million in 2017 to Ps.120,411 million in 2018, and (ii) a 123%Ps.13,678 million increase in net income from financial instruments from Ps.13,016 million in 2017 to Ps.26,694 million in 2018. This increase was offset by (i) a Ps.30,906 million increase in interest expenses from Ps.38,181 million in 2017 to Ps.69,087 million in 2018, and (ii) a Ps.13,854 million increase in loan and other receivables loss provisions attributable to an increase in loans in default. This decrease was partially offset by an increase in net operating income, which amounted to Ps.73,094 million for the fiscal year ended December 31, 2018, a 6% increase as compared to the fiscal year ended December 31, 2017 This increase was primarily due to an increase in our net results from financial instruments equal to Ps.8,892Ps.11,220 million in 2018 as compared2017 to 2017, a 105% increase.Ps.25,074 million in 2018.
Interest-Earning Assets
The following table shows our yields on interest-earning assets:assets:
|
| As of December 31, |
| |||||||||||||
|
| 2018 |
|
| 2017 |
| ||||||||||
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
| ||||
|
| (in millions of Pesos, except rates) |
| |||||||||||||
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 52,704 |
|
|
| 28.77 |
|
|
| 41,240 |
|
|
| 14.74 |
|
Loans |
|
| 301,653 |
|
|
| 24.62 |
|
|
| 264,122 |
|
|
| 19.25 |
|
Other |
|
| 16,378 |
|
|
| 20.74 |
|
|
| 16,872 |
|
|
| 19.67 |
|
Total Interest-Earning Assets |
|
| 370,735 |
|
|
| 25.04 |
|
|
| 322,234 |
|
|
| 18.69 |
|
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread, Nominal Basis (1) |
|
|
|
|
|
| 11.88 |
|
|
|
|
|
|
| 8.91 |
|
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
| 10.96 |
|
|
|
|
|
|
| 7.26 |
|
Net Yield on Interest-Earning Assets (2) |
|
|
|
|
|
| 14.08 |
|
|
|
|
|
|
| 11.43 |
|
|
|
(1) Reflects the difference between the average nominal interest rate on interest-earning assets and the average nominal interest rate on interest-bearing liabilities. Interest rates include the CER/UVA adjustment. (2) Net interest earned divided by average interest-earning assets. Interest rates include the CER/UVA adjustment. Fiscal Year 2019 compared to Fiscal Year 2018 The average of interest-earning assets decreased Ps.39,880 million, from Ps.570,317 million for the fiscal year ended December 31, 2018 to Ps.530,437 million for the fiscal year ended December 31, 2019, representing a 7% decrease. Of this decrease, Ps.88,741 million was due to a decrease in the average size of the loan portfolio. The average yield on interest-earning assets was 38.11% in 2019, as compared to 25.07% in 2018, a 1,304 bps increase, mainly attributable to an increase in the average interest rate earned on repurchase transactions and government securities. Fiscal Year 2018 compared to Fiscal Year 2017
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The average of interest-earning assets increased Ps.48,501Ps.73,245 million, from Ps.322,234Ps.497,072 million for the fiscal year ended December 31, 2017 to Ps.370,735Ps.570,317 million for the fiscal year ended December 31, 2018, representing a 15% increase. Of this increase, Ps.37,531Ps.57,609 million was due to an increase in the average size of the loan portfolio. The average yield on interest-earning assets was 25.04%25.07 % in 2018, as compared to 18.69%17.53% in 2017, a 635754 bps,
increase, that was primarily attributable to an increase in the average interest rate earned on government securities and an increase in the average interest rate earned on outstanding loans.
Interest-Bearing LiabilitiesInterest Expenses
The following table shows our yields
(95,676
)
(69,087
)
(38,181
)
38
81
Net Fee Income
28,083
32,875
32,563
(15
)
1
Fee Income
35,145
37,530
37,567
(6
)
—
Fee Related Expenses
(7,062
)
(4,655
)
(5,004
)
52
(7
)
Net Income from Financial Instruments
72,830
26,694
13,016
173
105
Income from Derecognition of Assets Measured at Amortized Cost
220
341
—
(35
)
—
Exchange Rate Differences on costGold and Foreign Currency
8,691
5,810
5,352
50
9
Other Operating Income
21,132
16,059
15,344
32
5
Income from Insurance Business
3,673
4,414
5,099
(17
)
(13
)
Loan and Other Receivables Loss Provisions
(22,203
)
(25,074
)
(11,220
)
(11
)
123
Net Operating Income
147,256
112,443
106,110
31
6
Personnel expenses
(24,449
)
(26,192
)
(26,288
)
(7
)
—
Administrative Expenses
(24,317
)
(24,735
)
(22,188
)
(2
)
11
Depreciations and Impairment of funds:Assets
|
| As of December 31, |
| |||||||||||||
|
| 2018 |
|
| 2017 |
| ||||||||||
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
| ||||
|
| (in millions of Pesos, except rates) |
| |||||||||||||
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking Accounts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Savings Accounts |
|
| 121,954 |
|
|
| 0.18 |
|
|
| 99,015 |
|
|
| 0.07 |
|
Time Deposits |
|
| 128,781 |
|
|
| 21.61 |
|
|
| 101,074 |
|
|
| 15.90 |
|
Debt Securities |
|
| 34,830 |
|
|
| 24.16 |
|
|
| 27,984 |
|
|
| 19.30 |
|
Other Interest-bearing Liabilities |
|
| 23,159 |
|
|
| 17.93 |
|
|
| 11,064 |
|
|
| 16.79 |
|
Total Interest-Bearing Liabilities |
|
| 308,724 |
|
|
| 13.16 |
|
|
| 239,137 |
|
|
| 9.78 |
|
The average interest-bearing liabilities
(5,064
)
(2,541
)
(2,214
)
99
15
Other Operating Expenses
(25,770
)
(25,996
)
(22,468
)
(1
)
16
Loss on Net Monetary Position
(30,798
)
(27,788
)
(10,496
)
11
165
Operating Income
36,858
5,191
22,456
610
(77
)
Share of Profit from Associates and Joint Ventures
—
—
494
—
(100
)
Income Tax from Continuing Operations
(13,038
)
(10,634
)
(11,259
)
23
(6
)
Net Income from Discontinuing Operations
—
(448
)
(495
)
100
9
Net Income (Loss) for the fiscal year ended December 31, 2018 were equal to Ps.308,724 million, as compared to Ps.239,137 millionYear
23,819
(5,891
)
11,196
504
(153
)
Net Income (Loss) for the fiscal year ended December 31, 2017, an increase of 29% as comparedYear Attributable to 2017. Such increase was primarily attributable to a Ps.50,646 million increase in total interest-bearing deposits (savings accounts and time deposits), which increased to Ps.250,735 million as of the fiscal year ended December 31, 2018 from Ps.200,089 million as of the fiscal year ended December 31, 2017, and a Ps.12,095 million increase in the average balance of other interest-bearing liabilities, which increased to Ps.23,159 million as of the fiscal year ended December 31, 2018 from Ps.11,064 million as of the fiscal year ended December 31, 2017.Parent Company´s Owner
Interest
23,708
(5,332
)
10,451
545
(151
)
Net Income
Our consolidated interest income was composed of the following:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Cash and due from banks |
|
| 1 |
|
|
| — |
|
|
| — |
|
Private sector securities |
|
| 330 |
|
|
| 250 |
|
|
| 32 |
|
Public sector securities |
|
| 1,389 |
|
|
| 449 |
|
|
| 209 |
|
On Loans and Other Financing Activities |
|
| 75,808 |
|
|
| 52,712 |
|
|
| 44 |
|
Non-financial Public Sector |
|
| - |
|
|
| 4 |
|
|
| (100 | ) |
Financial Sector |
|
| 2,104 |
|
|
| 1,107 |
|
|
| 90 |
|
Non-financial Private Sector |
|
| 73,704 |
|
|
| 51,601 |
|
|
| 43 |
|
Overdrafts |
|
| 9,839 |
|
|
| 4,409 |
|
|
| 123 |
|
Mortgage loans |
|
| 5,951 |
|
|
| 941 |
|
|
| 532 |
|
Collateralized loans |
|
| 426 |
|
|
| 184 |
|
|
| 132 |
|
Personal Loans |
|
| 9,149 |
|
|
| 7,718 |
|
|
| 19 |
|
Credit Card Loans |
|
| 29,356 |
|
|
| 24,900 |
|
|
| 18 |
|
Financial Leases |
|
| 604 |
|
|
| 539 |
|
|
| 12 |
|
Others |
|
| 18,379 |
|
|
| 12,910 |
|
|
| 42 |
|
On Repurchase Transactions |
|
| 746 |
|
|
| 1,283 |
|
|
| (42 | ) |
Total Interest Income |
|
| 78,274 |
|
|
| 54,694 |
|
|
| 43 |
|
Interest income (Loss) for the fiscal year ended December 31, 2018 was Ps.78,274 million, as comparedYear Attributable to Ps.54,694 million for the fiscal year ended December 31, 2017, a 43% increase. Such increase was the result of a higher average volume of interest-earning assets and higher average interest rates charged thereon.Non-controlling Interests
The average amount of loans for the fiscal year ended December 31, 2018 was equal
111
(559
)
745
120
(175
)
Other Comprehensive Income (Loss)
403
(135
)
(669
)
399
80
Total Comprehensive Income (Loss)
24,222
(6,026
)
10,527
502
(157
)
Total Comprehensive Income (Loss) Attributable to Ps.301,653 million, a 14% increase as comparedParent Company´s Owners
24,111
(5,467
)
9,782
541
(156
)
Total Comprehensive Income (Loss) Loss Attributable to the Ps.264,122 million for the fiscal year ended December 31, 2017. This increase was primarily attributable to the increase in overdraft, mortgage and credit card loans extended as part of the portfolio.Non-controlling Interests
The average interest rate
111
(559
)
745
120
(175
)
Ratios (%)
Change (pbs)
Return on total loans was 24.62% for the fiscal year ended December 31, 2018, as compared to 19.25% for the fiscal year ended December 31, 2017.Assets
The average interest rate
3.46
(0.61
)
1.39
407
(200
)
Return on Peso-denominated loans to the private sector was 32.59% for the fiscal year ended December 31, 2018, as compared to an average interest rate of 23.40% for the fiscal year ended December 31, 2017, representing a 919 bps increase year-over-year.Shareholders’ Equity
Interest income from banking activity amounted to Ps.62,718 million, a 55% increase as compared to the Ps.40,517 million recorded in the fiscal year ended December 31, 2017. This increase is primarily attributable to increased interest due on loans and other financing from the non-financial private sector. The principal variations were in interest income on overdraft accounts and mortgages.
According to Argentine Central Bank information, as of December 31, 2018, Banco Galicia’s estimated market share of loans to the private sector was 10.51% as of December 31, 2018, as compared to 9.65% as of December 31, 2017.
The following table indicates Banco Galicia market share in the segments listed below:20.81
|
| For the Year Ended December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (in percentages) |
| |||||
Total Loans |
|
| 10.62 |
|
|
| 9.53 |
|
Private-Sector Loans |
|
| 10.51 |
|
|
| 9.65 |
|
(5.76 | ) | 10.53 | 2,657 | (1,629 |
|
|
Interest income related to Regional Credit Cards amounted to Ps.15,140 million for the year ended December 31, 2018, an 11% increase as compared to the Ps.13,579 million recorded for the fiscal year ended December 31, 2017. This increase was primarily the result of additional interest earned on the outstanding balances on issued credit cards.v
Interest income related to insurance activity amounted to Ps.423 million for the year ended December 31, 2018, a 1% decrease as compared to the Ps.428 million recorded
Change (%)
Basic Earnings per Share (in Pesos)
16.62
(3.74
)
7.32
545
(151
)
Fiscal Year 2019 compared to Fiscal Year 2018
Net income for the fiscal year ended December 31, 2019 was equal to Ps.23,819 million, as compared to net loss equal to Ps.5,891 million for the fiscal year ended December 31, 2018, a Ps.29,710 million, or 504% increase. This result was mainly due to net income from: (i) banking activities (Banco Galicia) for Ps.22,283 million, (ii) Tarjetas Regionales for Ps.653 million and (iii) insurance services (Sudamerica Holding) for Ps.634 million.
Net earnings per share for the fiscal year ended December 31, 2019 was equal to a Ps.16.62 per share gain, as compared to a Ps.3.74 per share loss for the fiscal year ended December 31, 2018.
The return on assets and the return on shareholders’ equity for the fiscal year ended December 31, 2019 was equal to a 3.46% gain and 20.81% gain, respectively, as compared to a 0.61% loss and 5.76% loss, respectively, for the fiscal year ended December 31, 2018.
The increase in net income for the year ended December 31, 2019 was primarily attributable to a higher net operating income, from Ps.112,443 million to Ps.147,256 million (a 31% increase as compared to December 31, 2018), and was partially offset by (i) a Ps.3,010 million increase loss on net monetary position, increasing from Ps.27,788 million in 2018 to Ps.30,798 million in 2019, and (ii) a Ps.2,523 million increase in depreciation and impairment of assets, increasing from Ps.2,541 million in 2018 to Ps.5,064 million in 2019.
The increase in net operating income from the year ended December 31, 2019 was mainly attributable to (i) a Ps.46,136 million increase in net income from financial instruments, from Ps.26,694 million in 2018 to Ps.72,830 million in 2019, (ii) a Ps.10,095 million increase in interest income from Ps.120,411 million in 2018 to Ps.130,506 million in 2019, and (iii) a Ps.5,073 million increase in other operating income from Ps.16,059 million in 2018 to Ps.21,132 million in 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Net loss for the fiscal year ended December 31, 2018 was equal to Ps.5,891 million, as compared to net income equal to Ps.11,196 million for the fiscal year ended December 31, 2017, a Ps.17,087 million, or 153% decrease. This result was mainly due to net loss (i) from banking activities (Banco Galicia) for Ps.3,150 million, and (ii) from Tarjetas Regionales for Ps.3,291 million and was partially offset by net income from activities related to insurance services (Sudamerica Holding) for Ps.310 million.
Net loss per share for the fiscal year ended December 31, 2018 was equal to a Ps.3.74 per share, as compared to a Ps.7.32 per share gain for the fiscal year ended December 31, 2017.
The return on assets and the return on shareholders’ equity for the fiscal year ended December 31, 2018 was equal to a 0.61% loss and 5.76 % loss, respectively, as compared to a 1.39% and 10.53%, respectively, for the fiscal year ended December 31, 2017.
This net loss was attributable to (i) a low growth of net operating income (6% increase compared to previous year) and (ii) a 165% increase in loss on net monetary position.
The result of a Ps.17,292 million increase in loss on net monetary position was attributable to higher inflation levels.
The Ps.6,333 million increase in net operating income was mainly attributable to (i) a Ps.36,274 million increase in interest income from Ps.84,137 million in 2017 to Ps.120,411 million in 2018, and (ii) a Ps.13,678 million increase in net income from financial instruments from Ps.13,016 million in 2017 to Ps.26,694 million in 2018. This increase was offset by (i) a Ps.30,906 million increase in interest expenses from Ps.38,181 million in 2017 to Ps.69,087 million in 2018, and (ii) a Ps.13,854 million increase in loan and other receivables loss provisions from Ps.11,220 million in 2017 to Ps.25,074 million in 2018.
Interest-Earning Assets
The following table shows our yields on interest-earning assets:
|
| As of December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
| ||||||
|
| (in millions of Pesos, except rates) |
| |||||||||||||||||||||
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 130,598 |
|
|
| 50.78 |
|
|
| 81,012 |
|
|
| 29.05 |
|
|
| 63,438 |
|
|
| 16.70 |
|
Loans |
|
| 375,272 |
|
|
| 31.20 |
|
|
| 464,013 |
|
|
| 24.62 |
|
|
| 406,404 |
|
|
| 17.62 |
|
Other |
|
| 24,567 |
|
|
| 76.35 |
|
|
| 25,292 |
|
|
| 20.41 |
|
|
| 27,230 |
|
|
| 18.14 |
|
Total Interest-Earning Assets |
|
| 530,437 |
|
|
| 38.11 |
|
|
| 570,317 |
|
|
| 25.07 |
|
|
| 497,072 |
|
|
| 17.53 |
|
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread, Nominal Basis (1) |
|
|
|
|
|
| 16.69 |
|
|
|
|
|
|
| 11.40 |
|
|
|
|
|
|
| 8.32 |
|
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
| 18.18 |
|
|
|
|
|
|
| 11.08 |
|
|
|
|
|
|
| 6.82 |
|
Net Yield on Interest-Earning Assets (2) |
|
|
|
|
|
| 19.93 |
|
|
|
|
|
|
| 13.99 |
|
|
|
|
|
|
| 10.71 |
|
(1) Reflects the difference between the average nominal interest rate on interest-earning assets and the average nominal interest rate on interest-bearing liabilities. Interest rates include the CER/UVA adjustment.
(2) Net interest earned divided by average interest-earning assets. Interest rates include the CER/UVA adjustment.
Fiscal Year 2019 compared to Fiscal Year 2018
The average of interest-earning assets decreased Ps.39,880 million, from Ps.570,317 million for the fiscal year ended December 31, 2018 to Ps.530,437 million for the fiscal year ended December 31, 2019, representing a 7% decrease. Of this decrease, Ps.88,741 million was due to a decrease in the average size of the loan portfolio. The average yield on interest-earning assets was 38.11% in 2019, as compared to 25.07% in 2018, a 1,304 bps increase, mainly attributable to an increase in the average interest rate earned on repurchase transactions and government securities.
Fiscal Year 2018 compared to Fiscal Year 2017
The average of interest-earning assets increased Ps.73,245 million, from Ps.497,072 million for the fiscal year ended December 31, 2017 to Ps.570,317 million for the fiscal year ended December 31, 2018, representing a 15% increase. Of this increase, Ps.57,609 million was due to an increase in the average size of the loan portfolio. The average yield on interest-earning assets was 25.07 % in 2018, as compared to 17.53% in 2017, a 754 bps, that was primarily attributable to an increase in the average interest rate earned on government securities and an increase in the average interest rate earned on outstanding loans.
Interest Expenses
Our consolidated interest expenses were comprised of the following:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
On Deposits |
|
| 32,708 |
|
|
| 17,514 |
|
|
| 87 |
|
Non-financial Private Sector |
|
| 32,708 |
|
|
| 17,514 |
|
|
| 87 |
|
Checking Accounts |
|
| — |
|
|
| 1 |
|
|
| (100 | ) |
Savings Accounts |
|
| 5 |
|
|
| 5 |
|
|
| — |
|
Time Deposit and Term Investments |
|
| 28,706 |
|
|
| 16,758 |
|
|
| 71 |
|
Others |
|
| 3,997 |
|
|
| 750 |
|
|
| 433 |
|
On Loans from the Argentine Central Bank and Other Financial Institutions |
|
| 2,161 |
|
|
| 1,194 |
|
|
| 81 |
|
On Repurchase Transactions |
|
| 220 |
|
|
| 358 |
|
|
| (39 | ) |
On Other Financial Liabilities |
|
| 5,632 |
|
|
| 3,841 |
|
|
| 47 |
|
On Negotiable Obligations Issued |
|
| 4,189 |
|
|
| 1,913 |
|
|
| 119 |
|
Total Interest Expenses |
|
| 44,910 |
|
|
| 24,820 |
|
|
| 81 |
|
Interest expenses for the fiscal year ended December 31, 2018 were equal to Ps.44,910 million, as compared to Ps.24,820 million for the fiscal year ended December 31, 2017, representing a 81% increase. Such increase was primarily attributable to a 29% increase in the average balance of interest-bearing liabilities.
Interest expenses from deposits amounted Ps.32,708 million for the fiscal year ended December 31, 2018, as compared to Ps.17,514 million for the fiscal year ended December 31, 2017, an 87% increase. This increase was primarily due to increased interest expenses related to time deposits and investments, which was equal to Ps.28,706 million for the fiscal year ended December 31, 2018, representing a 71% increase as compared to Ps.16,758 million for the fiscal year ended December 31, 2017.(95,676
With respect to the total average interest-bearing deposits for the fiscal year ended December 31, 2018, Ps.135,427 million were Peso-denominated deposits and Ps.115,308 million were foreign currency-denominated deposits, as compared to Ps.130,690 million and Ps.69,399 million, respectively, for the fiscal year ended December 31, 2017. Average deposits recorded an increase of 25%, with an increase of 23% in savings account deposits and a 27% increase in time deposits.)
Out of total interest-bearing time deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2018, the average interest rate of time deposits was 11.19%, as compared to 8.07% for the fiscal year ended December 31, 2017, a 312 bps increase.
Peso-denominated deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2018 accrued interest at an average rate of 20.53%, as compared to an average rate of 12.28% for the fiscal year ended December 31, 2017, a 825 bps increase. The rate of foreign currency-denominated deposits for the fiscal year ended December 31, 2018 was 0.22%, as compared to 0.12% for the fiscal year ended December 31, 2017, a 10 bps increase.(69,087
Interest expenses related to banking activity amounted Ps.39,102 million for the fiscal year ended December 31, 2018, as compared to Ps.20,792 million for the fiscal year ended December 31, 2017, representing a 88% increase. Such increase was primarily the result of a higher volume of deposits on which the Bank paid interest.)
Using Argentine Central Bank information and considering only deposits from the private-sector deposits in checking and savings accounts and time deposits, Banco Galicia’s estimated Argentine deposit market share increased from 10.20% as of December 31, 2017 to 11.08% as of December 31, 2018.
The following table indicates Banco Galicia´s market share in the segments listed below:(38,181
|
| For the Year Ended December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (in percentages) |
| |||||
Total Deposits |
|
| 8.85 |
|
|
| 8.23 |
|
Private-Sector Deposits |
|
| 11.08 |
|
|
| 10.20 |
|
Total Deposits in Checking and Savings Accounts and Time Deposits |
|
| 11.33 |
|
|
| 10.48 |
|
) | 38 | 81 |
|
|
Interest expenses related to Regional Credit Cards amounted Ps.5,962 million for the fiscal year ended December 31, 2018, as compared to Ps.4,028 million for the fiscal year ended December 31, 2017, representing a 48% increase. This increase was primarily the result of an increase in interest expenses on debt securities issued by Tarjetas Regionales or its subsidiaries.
Our consolidated net fee income consisted of:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Income From |
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards |
|
| 13,374 |
|
|
| 16,578 |
|
|
| (19 | ) |
Deposit Accounts |
|
| 2,874 |
|
|
| 2,705 |
|
|
| 6 |
|
Inssurances |
|
| 617 |
|
|
| 819 |
|
|
| (25 | ) |
Financial fees |
|
| 266 |
|
|
| 288 |
|
|
| (8 | ) |
Credit-related fees |
|
| 1,005 |
|
|
| 994 |
|
|
| 1 |
|
Foreign trade |
|
| 2,362 |
|
|
| 1,584 |
|
|
| 49 |
|
Collections |
|
| 606 |
|
|
| 743 |
|
|
| (18 | ) |
Utility-bills collection services |
|
| 729 |
|
|
| 630 |
|
|
| 16 |
|
Mutual funds |
|
| 402 |
|
|
| 188 |
|
|
| 114 |
|
Others |
|
| 1,029 |
|
|
| 870 |
|
|
| 18 |
|
Total fee income |
|
| 23,264 |
|
|
| 25,399 |
|
|
| (8 | ) |
Total fee expenses |
|
| (3,026 | ) |
|
| (3,253 | ) |
|
| (7 | ) |
Net fee income |
|
| 20,238 |
|
|
| 22,146 |
|
|
| (9 | ) |
Our net fee income for the fiscal year ended December 31, 2018 was equal to Ps.20,238 million, as compared to Ps.22,146 million for the fiscal year ended December 31, 2017, a 9% decrease. This decrease was mainly due to a 19% decrease of fees related to credit cards.
Income from credit and debit card transactions, for the fiscal year ended December 31, 2018 was Ps.13,374 million, as compared to Ps.16,578 million for the fiscal year ended December 31, 2017, a 19% decrease. Such decrease was mainly attributable to an increase in costs associated with the maintenance of issued credit cards as a result of a decrease in credit card fees and stagnant consumer consumption as a result of the inflationary Argentine economy. The total number of credit cards for the fiscal year ended December 31, 2018 was 13,915,580, as compared to 13,894,319 as of December 31, 2017, a 0.15% increase.28,083
The most significant increase in fees was to those related to foreign trade operations. Fees from foreign trade for the fiscal year ended December 31, 2018 were equal to Ps.2,362 million, as compared to Ps.1,584 million for the fiscal year ended December 31, 2017, a 49% increase.
Fees related to the maintenance of deposit accounts for the fiscal year ended December 31, 2018 were equal to Ps.2,874, as compared to Ps.2,705 million for the fiscal year ended December 31, 2017, a 6% increase. This increase was due to increase in the number of deposit accounts under management. Total deposit accounts for the fiscal year ended December 31, 2018 were 4.8million, as compared to 4.2 million for the fiscal year ended December 31, 2017, a 12% increase.
Total fee expenses for the fiscal year ended December 31, 2018 were equal to Ps.3,026 million, as compared to Ps.3,253 million for the fiscal year ended December 31, 2017, a 7% decrease. Such decrease was mainly attributable to a decrease in expenses related to credit and debit card transactions.32,875
The following table sets forth the number of credit cards outstanding as of the dates indicated:
|
| December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (number of credit cards, except otherwise noted) |
|
| (percentages) |
| ||||||
Visa |
|
| 3,136,166 |
|
|
| 2,979,993 |
|
|
| 5 |
|
“Gold” |
|
| 744,771 |
|
|
| 705,990 |
|
|
| 5 |
|
International |
|
| 1,282,617 |
|
|
| 1,368,945 |
|
|
| (6 | ) |
Domestic |
|
| 50,091 |
|
|
| 55,956 |
|
|
| (10 | ) |
“Business” |
|
| 148,549 |
|
|
| 131,547 |
|
|
| 13 |
|
“Signature” |
|
| 359,477 |
|
|
| 258,121 |
|
|
| 39 |
|
“Platinum” |
|
| 550,661 |
|
|
| 459,434 |
|
|
| 20 |
|
Galicia Rural |
|
| 18,188 |
|
|
| 17,960 |
|
|
| 1 |
|
American Express |
|
| 893,314 |
|
|
| 964,007 |
|
|
| (7 | ) |
“Gold” |
|
| 280,239 |
|
|
| 313,580 |
|
|
| (11 | ) |
“International” |
|
| 184,437 |
|
|
| 240,441 |
|
|
| (23 | ) |
“Platinum” |
|
| 270,068 |
|
|
| 274,717 |
|
|
| (2 | ) |
"Signature" |
|
| 158,570 |
|
|
| 135,269 |
|
|
| 17 |
|
MasterCard |
|
| 1,050,041 |
|
|
| 784,316 |
|
|
| 34 |
|
“Gold” |
|
| 284,340 |
|
|
| 196,911 |
|
|
| 44 |
|
MasterCard |
|
| 414,559 |
|
|
| 381,215 |
|
|
| 9 |
|
Argencard |
|
| 148 |
|
|
| 200 |
|
|
| (26 | ) |
“Platinum” |
|
| 170,202 |
|
|
| 96,068 |
|
|
| 77 |
|
“Black” |
|
| 180,792 |
|
|
| 109,922 |
|
|
| 64 |
|
Regional Credit Card Companies |
|
| 8,817,871 |
|
|
| 9,148,043 |
|
|
| (4 | ) |
Regional Brands(1) |
|
| 4,777,286 |
|
|
| 5,045,881 |
|
|
| (5 | ) |
Visa |
|
| 3,503,792 |
|
|
| 3,529,516 |
|
|
| (1 | ) |
MasterCard |
|
| 491,231 |
|
|
| 531,398 |
|
|
| (8 | ) |
American Express |
|
| 45,562 |
|
|
| 41,248 |
|
|
| 10 |
|
Total Credit Cards |
|
| 13,915,580 |
|
|
| 13,894,319 |
|
|
| — |
|
Total Amount of Purchases (in millions of Pesos) |
|
| 636,062,774 |
|
|
| 265,581,905 |
|
|
| 139 |
|
|
| 32,563 | (15 | ) | 1 |
Net fee income related to banking activity for the fiscal year ended December 31, 2018 was equal to Ps.12,476 million, as compared to Ps.12,163 million for fiscal year ended December 31, 2017, a 3% increase.Fee Income
The main components of net fee income are fees related to foreign trade and mutual funds. The fees related to foreign trade for the fiscal year ended December 31, 2018 amounted Ps.2,362 million, as compared to Ps.1,584 million for the fiscal year ended December 31, 2017, a 49% increase. The fees related to mutual funds for the fiscal year ended December 31, 2018 amounted to Ps.402 million as compared to Ps.188 million for the fiscal year ended December 31, 2017, a 114% increase.
Fees related to deposit accounts and credit and debit card transactions were stable. With respect to revenue generated by credit and debit card transactions for the fiscal year ended December 31, 2018 was equal to Ps.5,299 million, as compared to Ps.6,496 million for the fiscal year ended December 31, 2017, a 18% decrease. For the fiscal year ended December 31, 2018, fees related to deposit accounts were equal to Ps.2,874 million, as compared to Ps.2,705 million for the fiscal year ended December 31, 2017, a 6% increase.
Net fee income related to Regional Credit Cards for the fiscal year ended December 31, 2018 amounted to Ps.8,930 million, as compared to Ps.10,028 million for the fiscal year ended December,31 2017, an 11% decrease. This decrease was primarily the result of decrease in consumption by credit card users and a decrease in the number of credit cards issued due to the merger with Tarjeta Nevada.35,145
37,530
37,567
(6
)
—
Fee Related Expenses
(7,062
)
(4,655
)
(5,004
)
52
(7
)
Net Income from Financial Instruments
Our consolidated net income
72,830
26,694
13,016
173
105
Income from financial instruments was comprised of:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos) |
|
|
|
|
| |||||
Income from Government Securities |
|
| 13,908 |
|
|
| 7,488 |
|
|
| 86 |
|
Income from Private Securities |
|
| 1,546 |
|
|
| 1,570 |
|
|
| (2 | ) |
Income from Derivative Instruments |
|
| 1,889 |
|
|
| (597 | ) |
|
| (416 | ) |
Repurchase Transactions |
|
| 1,999 |
|
|
| (595 | ) |
|
| (436 | ) |
Rate Swaps |
|
| (110 | ) |
|
| — |
|
|
| — |
|
Options |
|
| — |
|
|
| (2 | ) |
|
| (100 | ) |
Income from Other Financial Assets |
|
| 10 |
|
|
| — |
|
|
| — |
|
Total Net Results from Financial Instruments |
|
| 17,353 |
|
|
| 8,461 |
|
|
| 105 |
|
Our net income from financial instruments for the fiscal year ended December 31, 2018 was equal to Ps.17,353 million, as compared to Ps.8,461 million for the fiscal year ended December 31, 2017, a 105% increase.
The average position in government securities for the fiscal year ended December 31, 2018 was Ps.52,704 million, as compared to Ps.41,240 million for the fiscal year ended December 31, 2017, a 28% increase. This increase was primarily attributable to an increaseDerecognition of Ps.9,172 million in the average position in Peso-denominated government securities and of Ps.2,292 million in the average position in foreign currency-denominated government securities. Assets Measured at Amortized Cost
The average position in Peso-denominated government securities for the fiscal year ended December 31, 2018 was Ps.45,045 million, as compared to Ps.35,872 million for the fiscal year ended December 31, 2017, a 26% increase. This increase was primarily attributable to higher balances of securities issued by the Argentine Central Bank (Leliqs).The average position in foreign currency-denominated government securities for the fiscal year ended December 31, 2018 was Ps.7,659 million, as compared to Ps.5,367 million for the fiscal year ended December 31, 2017, a 43% increase.
The average yield
220
341
—
(35
)
—
Exchange Rate Differences on government securities for the fiscal year ended December 31, 2018 was 28.77%, as compared to 14.74% for fiscal year ended December 31, 2017. This increase was primarily attributable to a higher average yield with respect to Peso-denominated government securities.
The average interest rate on Peso-denominated government securities for the fiscal year ended December 31, 2018 was 33.21%, as compared to 16.24% for the fiscal year ended December 31, 2017.This increase, was primarily attributable to higher interest rates on securities (Leliqs) issued by the Argentine Central Bank. The average interest rate of foreign currency-denominated government securities for the fiscal year ended December 31, 2017 was 2.65%, as compared to 4.68% for fiscal year ended December 31, 2017. This decrease was primarily attributable to changes in the investment portfolio.
These variations were mainly a result of net income from financial instruments related to Banco Galicia, which represents 92% of our total consolidated financial instruments. Banco Galicia’s net income from financial instruments for the fiscal year ended December 31, 2018 amounted Ps.16,048 million, as compared to Ps.6,726 million for the fiscal year ended December 31, 2017, a 139% increase. This increase was primarily attributable to an increase in income from government securities.
Gold and foreign currency quotation differences for the fiscal year ended December 31, 2018 were equal to Ps.3,777 million, as compared to Ps.3,479 million for the fiscal year ended December 31, 2017, a 9% increase. This increase was primarily the result of an increase in foreign currency brokerage at Banco Galicia for the fiscal year ended December 31, 2018 equal to Ps.5,989 million, as compared to Ps.2,943 million of the fiscal year ended December 31, 2017, a 103% increase.
8,691
5,810
5,352
50
9
Other Operating Income
The following table sets forth the various components of other operating income.
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos) |
|
|
|
|
| |||||
Other financial income (1) (2) |
|
| 390 |
|
|
| 58 |
|
|
| 572 |
|
Commission on Product Package (1) |
|
| 2,731 |
|
|
| 2,804 |
|
|
| (3 | ) |
Rental of safe deposit boxes (1) |
|
| 516 |
|
|
| 512 |
|
|
| 1 |
|
Other fee income (1) |
|
| 4,082 |
|
|
| 3,177 |
|
|
| 28 |
|
Other adjustments and interest on miscellaneous receivables |
|
| 1,599 |
|
|
| 456 |
|
|
| 251 |
|
Other |
|
| 2,475 |
|
|
| 1,990 |
|
|
| 24 |
|
Total other operating income |
|
| 11,793 |
|
|
| 8,997 |
|
|
| 31 |
|
|
| 21,132 | 16,059 | 15,344 | 32 | 5 |
|
|
Other operating income for the fiscal year ended December 31, 2018 was equal to Ps.11,793 million, as compared to Ps.8,997 million for the fiscal year ended December 31, 2017, a 31% increase. This increase was mainly the result of a increase in income from other fees for the fiscal year ended December 31, 2018, which was equal to Ps.4,082 million, as compared to Ps.3,177 million for the fiscal year ended December 31, 2017.
Other operating income related to banking activity was equal to Ps.7,183 million, as compared to Ps.5,082 million for the fiscal year ended December 31, 2017, a 41% increase.
Other operating income related to Regional Credit Cards for the fiscal year ended December 31, 2018 was equal to Ps.3,682 million, as compared to Ps.4,058 million for the fiscal year ended December 31, 2017, a 9% decrease.
Other operating income related to insurance activity for the fiscal year ended December 31, 2018 was equal to Ps.164 million, as compared to Ps.73 millon for the fiscal year ended December 31, 2017, a 125% increase.
Income from Insurance ActivitiesBusiness
The following table shows the results generated by insurance activities:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Premiums and Surcharges Accrued |
|
| 4,687 |
|
|
| 5,261 |
|
|
| (11 | ) |
Claims Accrued |
|
| (536 | ) |
|
| (605 | ) |
|
| (11 | ) |
Surrenders |
|
| (6 | ) |
|
| (7 | ) |
|
| (14 | ) |
Life and Ordinary Annuities |
|
| (8 | ) |
|
| (9 | ) |
|
| (11 | ) |
Underwriting and Operating Expenses |
|
| (1,285 | ) |
|
| (1,300 | ) |
|
| (1 | ) |
Other Income and Expenses |
|
| 17 |
|
|
| (25 | ) |
|
| (168 | ) |
Total Income from Insurance Activities |
|
| 2,869 |
|
|
| 3,315 |
|
|
| (13 | ) |
Income from insurance activities (excluding administrative expenses and taxes, net of eliminations related to related-party transactions) for the fiscal year ended December 31, 2018 was equal to Ps.2,869 million, as compared to Ps.3,315 million for the fiscal year ended December 31, 2017, a 13% decrease. This decrease was
mainly due to the decrease in the volume of earned premiums and surcharges, but was partially offset by a decrease in the number of insurance claims filed.3,673
4,414
5,099
(17
)
(13
)
Loan and Other Receivables Loss Provisions
Loan
(22,203
)
(25,074
)
(11,220
)
(11
)
123
Net Operating Income
147,256
112,443
106,110
31
6
Personnel expenses
(24,449
)
(26,192
)
(26,288
)
(7
)
—
Administrative Expenses
(24,317
)
(24,735
)
(22,188
)
(2
)
11
Depreciations and other receivables loss provisionsImpairment of Assets
(5,064
)
(2,541
)
(2,214
)
99
15
Other Operating Expenses
(25,770
)
(25,996
)
(22,468
)
(1
)
16
Loss on Net Monetary Position
(30,798
)
(27,788
)
(10,496
)
11
165
Operating Income
36,858
5,191
22,456
610
(77
)
Share of Profit from Associates and Joint Ventures
—
—
494
—
(100
)
Income Tax from Continuing Operations
(13,038
)
(10,634
)
(11,259
)
23
(6
)
Net Income from Discontinuing Operations
—
(448
)
(495
)
100
9
Net Income (Loss) for the fiscal year ended December 31, 2018 were equal to Ps.16,300 million, as compared to Ps.7,294 millionYear
23,819
(5,891
)
11,196
504
(153
)
Net Income (Loss) for the fiscal year ended December 31, 2017, a 123% increase. This increase was primarily attributableYear Attributable to an increase in the amount of consumer loans in arrears and an increase in costs associated with compliance on current loans as a consequence of the increase in the size of the credit portfolio.Parent Company´s Owner
Loan and other receivables loss provisions related to banking activity were equal to Ps.10,873 million, as compared to Ps.3,899 million
23,708
(5,332
)
10,451
545
(151
)
Net Income (Loss) for the fiscal year ended December 31, 2017, a 179% increase. This increase was relatedYear Attributable to an increase in the loans in default and an increase in costs associated with complianceNon-controlling Interests
111
(559
)
745
120
(175
)
Other Comprehensive Income (Loss)
403
(135
)
(669
)
399
80
Total Comprehensive Income (Loss)
24,222
(6,026
)
10,527
502
(157
)
Total Comprehensive Income (Loss) Attributable to Parent Company´s Owners
24,111
(5,467
)
9,782
541
(156
)
Total Comprehensive Income (Loss) Loss Attributable to Non-controlling Interests
111
(559
)
745
120
(175
)
Ratios (%)
Change (pbs)
Return on current loans as a consequence of the increase in the size of the credit portfolio.Assets
Loan and other receivables loss provisions related to Regional Credit Cards for the fiscal year ended December 31, 2018 were equal to Ps.5,349 million, as compared to Ps.3,273 million for the fiscal year ended December 31, 2017, a 63% increase. This increase was related to an increase in the loans in default and an increase in costs associated with compliance
3.46
(0.61
)
1.39
407
(200
)
Return on current loans as a consequenceShareholders’ Equity
20.81
(5.76
)
10.53
2,657
(1,629
)
v
Change (%)
Basic Earnings per Share (in Pesos)
16.62
(3.74
)
7.32
545
(151
)
Fiscal Year 2019 compared to Fiscal Year 2018
Net income for the fiscal year ended December 31, 2019 was equal to Ps.23,819 million, as compared to net loss equal to Ps.5,891 million for the fiscal year ended December 31, 2018, a Ps.29,710 million, or 504% increase. This result was mainly due to net income from: (i) banking activities (Banco Galicia) for Ps.22,283 million, (ii) Tarjetas Regionales for Ps.653 million and (iii) insurance services (Sudamerica Holding) for Ps.634 million.
Net earnings per share for the fiscal year ended December 31, 2019 was equal to a Ps.16.62 per share gain, as compared to a Ps.3.74 per share loss for the fiscal year ended December 31, 2018.
The return on assets and the return on shareholders’ equity for the fiscal year ended December 31, 2019 was equal to a 3.46% gain and 20.81% gain, respectively, as compared to a 0.61% loss and 5.76% loss, respectively, for the fiscal year ended December 31, 2018.
The increase in net income for the year ended December 31, 2019 was primarily attributable to a higher net operating income, from Ps.112,443 million to Ps.147,256 million (a 31% increase as compared to December 31, 2018), and was partially offset by (i) a Ps.3,010 million increase loss on net monetary position, increasing from Ps.27,788 million in 2018 to Ps.30,798 million in 2019, and (ii) a Ps.2,523 million increase in depreciation and impairment of assets, increasing from Ps.2,541 million in 2018 to Ps.5,064 million in 2019.
The increase in net operating income from the year ended December 31, 2019 was mainly attributable to (i) a Ps.46,136 million increase in net income from financial instruments, from Ps.26,694 million in 2018 to Ps.72,830 million in 2019, (ii) a Ps.10,095 million increase in interest income from Ps.120,411 million in 2018 to Ps.130,506 million in 2019, and (iii) a Ps.5,073 million increase in other operating income from Ps.16,059 million in 2018 to Ps.21,132 million in 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Net loss for the fiscal year ended December 31, 2018 was equal to Ps.5,891 million, as compared to net income equal to Ps.11,196 million for the fiscal year ended December 31, 2017, a Ps.17,087 million, or 153% decrease. This result was mainly due to net loss (i) from banking activities (Banco Galicia) for Ps.3,150 million, and (ii) from Tarjetas Regionales for Ps.3,291 million and was partially offset by net income from activities related to insurance services (Sudamerica Holding) for Ps.310 million.
Net loss per share for the fiscal year ended December 31, 2018 was equal to a Ps.3.74 per share, as compared to a Ps.7.32 per share gain for the fiscal year ended December 31, 2017.
The return on assets and the return on shareholders’ equity for the fiscal year ended December 31, 2018 was equal to a 0.61% loss and 5.76 % loss, respectively, as compared to a 1.39% and 10.53%, respectively, for the fiscal year ended December 31, 2017.
This net loss was attributable to (i) a low growth of net operating income (6% increase compared to previous year) and (ii) a 165% increase in loss on net monetary position.
The result of a Ps.17,292 million increase in loss on net monetary position was attributable to higher inflation levels.
The Ps.6,333 million increase in net operating income was mainly attributable to (i) a Ps.36,274 million increase in interest income from Ps.84,137 million in 2017 to Ps.120,411 million in 2018, and (ii) a Ps.13,678 million increase in net income from financial instruments from Ps.13,016 million in 2017 to Ps.26,694 million in 2018. This increase was offset by (i) a Ps.30,906 million increase in interest expenses from Ps.38,181 million in 2017 to Ps.69,087 million in 2018, and (ii) a Ps.13,854 million increase in loan and other receivables loss provisions from Ps.11,220 million in 2017 to Ps.25,074 million in 2018.
Interest-Earning Assets
The following table shows our yields on interest-earning assets:
|
| As of December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
| ||||||
|
| (in millions of Pesos, except rates) |
| |||||||||||||||||||||
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities |
|
| 130,598 |
|
|
| 50.78 |
|
|
| 81,012 |
|
|
| 29.05 |
|
|
| 63,438 |
|
|
| 16.70 |
|
Loans |
|
| 375,272 |
|
|
| 31.20 |
|
|
| 464,013 |
|
|
| 24.62 |
|
|
| 406,404 |
|
|
| 17.62 |
|
Other |
|
| 24,567 |
|
|
| 76.35 |
|
|
| 25,292 |
|
|
| 20.41 |
|
|
| 27,230 |
|
|
| 18.14 |
|
Total Interest-Earning Assets |
|
| 530,437 |
|
|
| 38.11 |
|
|
| 570,317 |
|
|
| 25.07 |
|
|
| 497,072 |
|
|
| 17.53 |
|
Spread and Net Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Spread, Nominal Basis (1) |
|
|
|
|
|
| 16.69 |
|
|
|
|
|
|
| 11.40 |
|
|
|
|
|
|
| 8.32 |
|
Cost of Funds Supporting Interest-Earning Assets |
|
|
|
|
|
| 18.18 |
|
|
|
|
|
|
| 11.08 |
|
|
|
|
|
|
| 6.82 |
|
Net Yield on Interest-Earning Assets (2) |
|
|
|
|
|
| 19.93 |
|
|
|
|
|
|
| 13.99 |
|
|
|
|
|
|
| 10.71 |
|
(1) Reflects the difference between the average nominal interest rate on interest-earning assets and the average nominal interest rate on interest-bearing liabilities. Interest rates include the CER/UVA adjustment.
(2) Net interest earned divided by average interest-earning assets. Interest rates include the CER/UVA adjustment.
Fiscal Year 2019 compared to Fiscal Year 2018
The average of interest-earning assets decreased Ps.39,880 million, from Ps.570,317 million for the fiscal year ended December 31, 2018 to Ps.530,437 million for the fiscal year ended December 31, 2019, representing a 7% decrease. Of this decrease, Ps.88,741 million was due to a decrease in the average size of the loan portfolio. The average yield on interest-earning assets was 38.11% in 2019, as compared to 25.07% in 2018, a 1,304 bps increase, mainly attributable to an increase in the average interest rate earned on repurchase transactions and government securities.
Fiscal Year 2018 compared to Fiscal Year 2017
The average of interest-earning assets increased Ps.73,245 million, from Ps.497,072 million for the fiscal year ended December 31, 2017 to Ps.570,317 million for the fiscal year ended December 31, 2018, representing a 15% increase. Of this increase, Ps.57,609 million was due to an increase in the average size of the loan portfolio. The average yield on interest-earning assets was 25.07 % in 2018, as compared to 17.53% in 2017, a 754 bps, that was primarily attributable to an increase in the average interest rate earned on government securities and an increase in the average interest rate earned on outstanding loans.
Interest-Bearing Liabilities
The following table shows our yields on cost of funds:
|
| As of December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Average Yield / Rate |
| ||||||
|
| (in millions of Pesos, except rates) |
|
|
|
|
|
|
|
|
| |||||||||||||
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Accounts |
|
| 171,701 |
|
|
| 0.29 |
|
|
| 178,696 |
|
|
| 0.19 |
|
|
| 152,318 |
|
|
| 0.07 |
|
Time Deposits |
|
| 196,846 |
|
|
| 38.80 |
|
|
| 196,269 |
|
|
| 21.98 |
|
|
| 155,546 |
|
|
| 15.90 |
|
Debt Securities |
|
| 52,092 |
|
|
| 28.55 |
|
|
| 53,144 |
|
|
| 25.04 |
|
|
| 43,040 |
|
|
| 15.00 |
|
Other Interest-bearing Liabilities |
|
| 29,481 |
|
|
| 15.83 |
|
|
| 34,277 |
|
|
| 18.64 |
|
|
| 16,973 |
|
|
| 15.37 |
|
Total Interest-Bearing Liabilities |
|
| 450,120 |
|
|
| 21.42 |
|
|
| 462,386 |
|
|
| 13.67 |
|
|
| 367,877 |
|
|
| 9.22 |
|
Fiscal Year 2019 compared to Fiscal Year 2018
The average interest-bearing liabilities for the fiscal year ended December 31, 2019 were equal to Ps.450,120 million, as compared to Ps.462,386 million for the fiscal year ended December 31, 2018, a 3% decrease.
Such decrease was primarily attributable to (i) a Ps.6,418 million decrease in total interest-bearing deposits (savings accounts and time deposits), which decreased to Ps.368,547 million as of the fiscal year ended December 31, 2019 from Ps.374,965 million as of the fiscal year ended December 31, 2018, and (ii) a Ps.4,796 million decrease in the average balance of other interest-bearing liabilities, which decreased to Ps.29,481 million as of the fiscal year ended December 31, 2019 from Ps.34,277 million as of the fiscal year ended December 31, 2018.
Fiscal Year 2018 compared to Fiscal Year 2017
The average interest-bearing liabilities for the fiscal year ended December 31, 2018 were equal to Ps.462,386 million, as compared to Ps.367,877 million for the fiscal year ended December 31, 2017, an increase of 26%. Such increase was primarily attributable to a Ps.67,101 million increase in total interest-bearing deposits (savings accounts and time deposits), which increased to Ps.374,965 million as of the fiscal year ended December 31, 2018 from Ps.307,864 million as of the fiscal year ended December 31, 2017 and a Ps.17,304 million increase in the average balance of other interest-bearing liabilities, which increased to Ps.34,277 million as of the fiscal year ended December 31, 2018 from Ps.16,973 million as of the fiscal year ended December 31, 2017.
Interest Income
Our consolidated interest income was composed of the following:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Cash and due from banks |
|
| 8 |
|
|
| 1 |
|
|
| - |
|
|
| 700 |
|
|
| — |
|
Private sector securities |
|
| 390 |
|
|
| 508 |
|
|
| 384 |
|
|
| (23 | ) |
|
| 32 |
|
Public sector securities |
|
| 4,705 |
|
|
| 2,136 |
|
|
| 690 |
|
|
| 120 |
|
|
| 210 |
|
On Loans and Other Financing Activities |
|
| 118,268 |
|
|
| 116,618 |
|
|
| 81,089 |
|
|
| 1 |
|
|
| 44 |
|
Non-financial Public Sector |
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| — |
|
|
| (100 | ) |
Financial Sector |
|
| 3,159 |
|
|
| 3,237 |
|
|
| 1,702 |
|
|
| (2 | ) |
|
| 90 |
|
Non-financial Private Sector |
|
| 115,109 |
|
|
| 113,381 |
|
|
| 79,381 |
|
|
| 2 |
|
|
| 43 |
|
Advances |
|
| 12,594 |
|
|
| 15,135 |
|
|
| 6,783 |
|
|
| (17 | ) |
|
| 123 |
|
Mortgage loans |
|
| 12,853 |
|
|
| 9,155 |
|
|
| 1,447 |
|
|
| 40 |
|
|
| 533 |
|
Pledge loans |
|
| 702 |
|
|
| 655 |
|
|
| 284 |
|
|
| 7 |
|
|
| 131 |
|
Personal Loans |
|
| 12,219 |
|
|
| 14,074 |
|
|
| 11,872 |
|
|
| (13 | ) |
|
| 19 |
|
Credit Card Loans |
|
| 47,674 |
|
|
| 45,163 |
|
|
| 38,310 |
|
|
| 6 |
|
|
| 18 |
|
Financial Leases |
|
| 559 |
|
|
| 930 |
|
|
| 830 |
|
|
| (40 | ) |
|
| 12 |
|
Others |
|
| 28,508 |
|
|
| 28,269 |
|
|
| 19,855 |
|
|
| 1 |
|
|
| 42 |
|
On Repurchase Transactions |
|
| 7,135 |
|
|
| 1,148 |
|
|
| 1,974 |
|
|
| 522 |
|
|
| (42 | ) |
Total Income from Interest |
|
| 130,506 |
|
|
| 120,411 |
|
|
| 84,137 |
|
|
| 8 |
|
|
| 43 |
|
Fiscal Year 2019 compared to Fiscal Year 2018
Interest income for the fiscal year ended December 31, 2019 was equal to Ps.130,506 million, as compared to Ps.120,411 million for the fiscal year ended December 31, 2018, an 8% increase. Such increase was the result of (i) a Ps.5,987 million or 522% increase in interest recorded on repurchase transactions, (ii) a Ps.2,569 million or 120% increase in interest from public sector securities and (iii) a Ps.1,728 million or 2% increase on interest from non-financial private sector loans and other financing.
The average amount of loans for the fiscal year ended December 31, 2019 was equal to Ps.375,272 million, a 19% decrease as compared to the Ps.464,013 million for the fiscal year ended December 31, 2018. This was primarily attributable to a decrease in the volume of loans denominated in pesos.
The average interest rate on total loans was 31.20% for the fiscal year ended December 31, 2019, as compared to 24.62% for the fiscal year ended December 31, 2018, representing a 658 bps increase year-over-year.
The average interest rate on Peso-denominated loans to the private sector was 43.81% for the fiscal year ended December 31, 2019, as compared to an average interest rate of 32.59% for the fiscal year ended December 31, 2018, representing a 1,122 bps increase year-over-year.
The increase in interest from non-financial private sector loans and other financing was 2% for the fiscal year ended December 31, 2019, as compared to the fiscal year ended December 31, 2018, which was primarily attributable to (i) a Ps.3,698 million increase in interest from mortgages loans and (ii) a Ps.2,510 million increase in interest form credit cards loans.
Interest income from banking activity amounted to Ps.110,703 million, a 15% increase as compared to the Ps.96,474 million recorded in the fiscal year ended December 31, 2018.
According to Argentine Central Bank information, as of December 31, 2019, Banco Galicia’s estimated market share of loans to the private sector was 11.57% as of December 31, 2019, as compared to 10.51% as of December 31, 2018.
The following table indicates Banco Galicia market share in the segments listed below:
|
| For the Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in percentages) |
| |||||||||
Total Loans |
|
| 11.59 |
|
|
| 10.62 |
|
|
| 9.53 |
|
Private-Sector Loans |
|
| 11.57 |
|
|
| 10.51 |
|
|
| 9.65 |
|
(*) Exclusively Banco Galicia within the Argentine market, according to the daily information on loans published by the Argentine Central Bank. balances as of the last day of each year.
Interest income related to Tarjetas Regionales amounted to Ps.19,465 million for the year ended December 31, 2019, a 16% decrease as compared to the Ps.23,290 million recorded for the fiscal year ended December 31, 2018.
Interest income related to insurance activity amounted to Ps.841 million for the year ended December 31, 2019, a 29% increase as compared to the Ps.651 million recorded for the fiscal year ended December 31, 2018.
Fiscal Year 2018 compared to Fiscal Year 2017
Interest income for the fiscal year ended December 31, 2018 was Ps.120,411 million, as compared to Ps.84,137 million for the fiscal year ended December 31, 2017, a 43% increase. Such increase was mainly the result of a higher average volume of interest-earning assets and the higher average interest rates charged thereon.
The average amount of loans for the fiscal year ended December 31, 2018 was equal to Ps.464,013 million, a 14% increase as compared to the Ps.406,404 million for the fiscal year ended December 31, 2017. This increase was primarily attributable to the increase in overdraft, mortgage and credit card loans extended as part of the increase in the size of the credit portfolio.
The average interest rate on total loans was 24.62% for the fiscal year ended December 31, 2018, as compared to 17.62% for the fiscal year ended December 31, 2017, representing a 700 bps increase year-over-year.
The average interest rate on Peso-denominated loans to the private sector was 32.59% for the fiscal year ended December 31, 2018 as compared to an average interest rate of 21.37% for the fiscal year ended December 31, 2017, representing a 1,122 bps increase year-over-year.
Interest income from banking activity for the fiscal year ended December 31, 2018 amounted to Ps.96,474 million, a 55% increase as compared to the Ps.62,328 million recorded in the fiscal year ended December 31, 2017.
According to Argentine Central Bank information, as of, December 31, 2018 Banco Galicia’s estimated market share of loans to the private sector was 10.51%, an 86 pbs increase when compared with the fiscal year ended December 31, 2017.
Interest income related to Tarjetas Regionales amounted to Ps.23,290 million for the year ended December 31, 2018, an 11% increase as compared to the Ps.20,889 million recorded for the fiscal year ended December 31, 2017.
Interest income related to insurance services amounted to Ps.651 million for the year ended December 31, 2018, a 1% decrease as compared to the Ps.658 million recorded for the fiscal year ended December 31, 2017.
Interest Expenses
Our consolidated interest expenses were comprised of the following:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
On Deposits |
|
| 75,773 |
|
|
| 50,315 |
|
|
| 26,942 |
|
|
| 51 |
|
|
| 87 |
|
Non-financial Private Sector |
|
| 75,773 |
|
|
| 50,315 |
|
|
| 26,942 |
|
|
| 51 |
|
|
| 87 |
|
Checking Accounts |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| (100 | ) |
Savings Accounts |
|
| 6 |
|
|
| 8 |
|
|
| 8 |
|
|
| (25 | ) |
|
| — |
|
Time Deposit and Term Investments |
|
| 66,719 |
|
|
| 44,005 |
|
|
| 25,665 |
|
|
| 52 |
|
|
| 71 |
|
Others |
|
| 9,048 |
|
|
| 6,302 |
|
|
| 1,267 |
|
|
| 44 |
|
|
| 397 |
|
On Financing Received from the Argentine Central Bank and Other Financial Institutions |
|
| 2,454 |
|
|
| 3,324 |
|
|
| 1,837 |
|
|
| (26 | ) |
|
| 81 |
|
On Repurchase Transactions |
|
| 676 |
|
|
| 340 |
|
|
| 551 |
|
|
| 99 |
|
|
| (38 | ) |
On Other Financial Liabilities |
|
| 1,306 |
|
|
| 1,197 |
|
|
| 1,544 |
|
|
| 9 |
|
|
| (22 | ) |
On Debt Securities |
|
| 15,467 |
|
|
| 13,911 |
|
|
| 7,307 |
|
|
| 11 |
|
|
| 90 |
|
Total Interest Expenses |
|
| 95,676 |
|
|
| 69,087 |
|
|
| 38,181 |
|
|
| 38 |
|
|
| 81 |
|
Fiscal Year 2019 compared to Fiscal Year 2018
Interest expenses for the fiscal year ended December 31, 2019 were equal to Ps.95,676 million, as compared to Ps.69,087 million for the fiscal year ended December 31, 2018, representing a 38% increase. Such increase was primarily attributable to a 51% increase in interest paid on deposits, as consequence of higher rate yields.
Interest expenses from deposits amounted Ps.75,773 million for the fiscal year ended December 31, 2019, as compared to Ps.50,315 million for the fiscal year ended December 31, 2018, a Ps.25,458 million increase. This increase was primarily due to increased interest expenses related to time deposits and term investments, which was equal to Ps.66,719 million for the fiscal year ended December 31, 2019, representing a 52% increase as compared to Ps.44,005 million for the fiscal year ended December 31, 2018.
The total average interest-bearing deposits for the fiscal year ended December 31, 2019 remained stable, registering a decrease of 2%. Of this decrease, Ps.204,058 million were Peso-denominated deposits and Ps.164,489 million were foreign currency-denominated deposits, as compared to Ps.208,680 million and Ps.166,285 million, for the fiscal year ended December 31, 2018 a 2% and 1% decrease, respectively.
Out of total interest-bearing deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2019, the average interest rate of time deposits was 20.86%, as compared to 11.60% for the fiscal year ended December 31, 2018, a 926 bps increase.
Peso-denominated deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2019 accrued interest at an average rate of 37.52%, as compared to an average rate of 20.66% for the fiscal year ended December 31, 2018, a 1,686 bps increase. The rate of foreign currency-denominated deposits for the fiscal year ended December 31, 2019 was 0.20%, as compared to 0.23% for the fiscal year ended December 31, 2018, a 3 bps decrease.
Interest expenses related to banking activity amounted Ps.86,873 million for the fiscal year ended December 31, 2019, as compared to Ps.60,152 million for the fiscal year ended December 31, 2018, representing a 44% increase.
Using Argentine Central Bank information and considering only deposits from the private-sector deposits in checking and savings accounts and time deposits, Banco Galicia’s estimated Argentine deposit market share decreased from 11.09% as of December 31, 2018 to 9.92% as of December 31, 2019.
The following table indicates Banco Galicia´s market share in the segments listed below:
|
| For the Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
| (in percentages) |
| ||||||||||
Total Deposits |
|
| 8.23 |
|
| 8.86 |
|
|
| 8.23 |
| |
Private-Sector Deposits |
|
| 9.92 |
|
| 11.09 |
|
|
| 10.20 |
| |
Total Deposits in Checking and Savings Accounts and Time Deposits |
|
| 10.16 |
|
|
| 11.33 |
|
|
| 10.48 |
|
(*) Exclusively Banco Galicia within the Argentine market, according to the daily information on deposits published by the Argentine Central Bank. balances as of the last day of each year.
Interest expenses related to Tarjetas Regionales amounted Ps.9,719 million for the fiscal year ended December 31, 2019, as compared to Ps.9,171 million for the fiscal year ended December 31, 2018, representing a 6% increase.
Fiscal Year 2018 compared to Fiscal Year 2017
Interest expenses for the fiscal year ended December 31, 2018 were equal to Ps.69,087 million, as compared to Ps.38,181 million for the fiscal year ended December 31, 2017, representing a 81% increase. Such increase was primarily attributable to an 87% increase in interest paid on deposits.
Interest expenses from deposits amounted Ps.50,315 million for the fiscal year ended December 31, 2018 as compared to Ps.26,942 million for the fiscal year ended December 31, 2017 a Ps.23,373 million increase. This increase was primarily due to increased interest expenses related to time deposits and term investments, which was equal to Ps.44,005 million for the fiscal year ended December 31, 2018, representing a 71% increase as compared to Ps.25,665 million for the fiscal year ended December 31, 2017.
With respect to the total average interest-bearing deposits for the fiscal year ended December 31, 2018, Ps.208,680 million were Peso-denominated deposits and Ps.166,285 million were foreign currency-denominated deposits, a 4% increase and 56% increase, respectively, as compared to Ps.201,106 million and Ps.106,758 million, respectively, for the fiscal year ended December 31, 2017. Average deposits recorded an increase of 22% as compared to the fiscal year ended December 31, 2017, with an increase of 17% in savings account deposits and a 26% increase in time deposits.
Out of total interest-bearing deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2018 the average interest rate of time deposits was 11.60%, as compared to 8.07% for the fiscal year ended December 31, 2017, a 353 bps increase.
Peso-denominated deposits (savings accounts and time deposits) for the fiscal year ended December 31, 2018 accrued interest at an average rate of 20.65%, as compared to an average rate of 12.29% for the fiscal year ended December 31, 2017, an 836 bps increase. The rate of foreign currency-denominated deposits for the fiscal year ended December 31, 2018 was 0.23%, as compared to 0.12% for the fiscal year ended December 31, 2017, a 11 bps increase.
Interest expenses related to banking activity amounted Ps.60,152 million for the fiscal year ended December 31, 2018 as compared to Ps.31,985 million for the fiscal year ended December 31, 2017, representing an 88% increase.
Using Argentine Central Bank information and considering only deposits from the private-sector deposits in checking and savings accounts and time deposits, Banco Galicia’s estimated Argentine deposit market share increased from 10.20% as of December 31, 2017 to 11.09% as of December 31, 2018.
Interest expenses related to Tarjetas Regionales amounted Ps.9,171 million for the fiscal year ended December 31, 2018 as compared to Ps.6,197 million for the fiscal year ended December 31, 2017, representing a 48% increase. This increase was primarily the result of an increase in interest expenses on debt securities issued by Tarjetas Regionales or its subsidiaries.
Net Fee Income
Our consolidated net fee income consisted of:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Income From |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards |
|
| 17,780 |
|
|
| 17,511 |
|
|
| 18,565 |
|
|
| 2 |
|
|
| (6 | ) |
Deposit Accounts |
|
| 4,404 |
|
|
| 5,355 |
|
|
| 4,161 |
|
|
| (18 | ) |
|
| 29 |
|
Insurances |
|
| 1,320 |
|
|
| 1,594 |
|
|
| 334 |
|
|
| (17 | ) |
|
| 377 |
|
Financial fees |
|
| 314 |
|
|
| 460 |
|
|
| 745 |
|
|
| (32 | ) |
|
| (38 | ) |
Credit-related fees |
|
| 4,703 |
|
| �� | 6,351 |
|
|
| 7,586 |
|
|
| (26 | ) |
|
| (16 | ) |
Foreign trade |
|
| 1,566 |
|
|
| 1,486 |
|
|
| 2,437 |
|
|
| 5 |
|
|
| (39 | ) |
Collections |
|
| 1,247 |
|
|
| 1,134 |
|
|
| 1,142 |
|
|
| 10 |
|
|
| (1 | ) |
Utility-bills collection services |
|
| 1,734 |
|
|
| 1,350 |
|
|
| 970 |
|
|
| 28 |
|
|
| 39 |
|
Mutual funds |
|
| 896 |
|
|
| 740 |
|
|
| 288 |
|
|
| 21 |
|
|
| 157 |
|
Others |
|
| 1,181 |
|
|
| 1,549 |
|
|
| 1,339 |
|
|
| (24 | ) |
|
| 16 |
|
Total fee income |
|
| 35,145 |
|
|
| 37,530 |
|
|
| 37,567 |
|
|
| (6 | ) |
|
| - |
|
Total fee expenses |
|
| (7,062 | ) |
|
| (4,655 | ) |
|
| (5,004 | ) |
|
| 52 |
|
|
| (7 | ) |
Net fee income |
|
| 28,083 |
|
|
| 32,875 |
|
|
| 32,563 |
|
|
| (15 | ) |
|
| 1 |
|
Fiscal Year 2019 compared to Fiscal Year 2018
Our net fee income for the fiscal year ended December 31, 2019 was equal to Ps.28,083 million, as compared to Ps.32,875 million for the fiscal year ended December 31, 2018, a 15% decrease. This decrease was mainly due to a 26% decrease in credit-related fees.
Credit- related fees, amounted to Ps.4,703 million for the fiscal year ended December 31, 2019, a Ps.1,648 million decrease as compared to Ps.6,351 million for the fiscal year ended December 31, 2018. This decrease was consequence of a decrease in fees charged by Tarjetas Regionales as a result of (i) the merger of accounts held by Tarjeta Naranja and Tarjeta Nevada and (ii) a decrease in fees rates.
Income from credit card transactions, for the fiscal year ended December 31, 2019 was Ps.17,780 million, as compared to Ps.17,511 million for the fiscal year ended December 31, 2018, a Ps.269 million increase. Such increase was mainly attributable to an increase in fees recorded by Tarjetas Regionales, partially offset by the fees related to issuance of credit cards.
The total number of credit cards managed for the fiscal year ended December 31, 2019 was 13,545,870, as compared to 13,915,580 for the fiscal year ended December 31, 2018, a 3% decrease, mainly attributable to the merger of accounts between Tarjeta Naranja and Tarjeta Nevada.
Fees related to deposit accounts for the fiscal year ended December 31, 2019 were equal to Ps.4,404, as compared to Ps.5,355 million for the fiscal year ended December 31, 2018, a Ps.951 million decrease. This decrease was primarily attributable to a decrease in fees related to the maintenance of checking accounts. Total deposit accounts for the fiscal year ended December 31, 2019 were 5.2 million, as compared to 4.7 million for the fiscal year ended December 31, 2018, a 9% increase.
Total fee expenses for the fiscal year ended December 31, 2019 were equal to Ps.7,062 million, as compared to Ps.4,655 million for the fiscal year ended December 31, 2018, a 52% increase. Such increase was mainly attributable to an increase in expenses related to credit card transactions.
The following table sets forth the number of credit cards outstanding as of the dates indicated:
|
| December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (number of credit cards, except otherwise noted) |
|
| (percentages) |
| ||||||||||||||
Visa |
|
| 3,044,890 |
|
|
| 3,136,166 |
|
|
| 2,979,993 |
|
|
| (3 | ) |
|
| 5 |
|
“Gold” |
|
| 704,979 |
|
|
| 744,771 |
|
|
| 705,990 |
|
|
| (5 | ) |
|
| 5 |
|
International |
|
| 1,095,163 |
|
|
| 1,282,617 |
|
|
| 1,368,945 |
|
|
| (15 | ) |
|
| (6 | ) |
Domestic |
|
| 36,246 |
|
|
| 50,091 |
|
|
| 55,956 |
|
|
| (28 | ) |
|
| (10 | ) |
“Business” |
|
| 157,967 |
|
|
| 148,549 |
|
|
| 131,547 |
|
|
| 6 |
|
|
| 13 |
|
“Signature” |
|
| 459,996 |
|
|
| 359,477 |
|
|
| 258,121 |
|
|
| 28 |
|
|
| 39 |
|
“Platinum” |
|
| 590,539 |
|
|
| 550,661 |
|
|
| 459,434 |
|
|
| 7 |
|
|
| 20 |
|
Galicia Rural |
|
| 16,687 |
|
|
| 18,188 |
|
|
| 17,960 |
|
|
| (8 | ) |
|
| 1 |
|
American Express |
|
| 749,303 |
|
|
| 893,314 |
|
|
| 964,007 |
|
|
| (16 | ) |
|
| (7 | ) |
“Gold” |
|
| 211,802 |
|
|
| 280,239 |
|
|
| 313,580 |
|
|
| (24 | ) |
|
| (11 | ) |
“International” |
|
| 122,173 |
|
|
| 184,437 |
|
|
| 240,441 |
|
|
| (34 | ) |
|
| (23 | ) |
“Platinum” |
|
| 237,968 |
|
|
| 270,068 |
|
|
| 274,717 |
|
|
| (12 | ) |
|
| (2 | ) |
"Signature" |
|
| 177,360 |
|
|
| 158,570 |
|
|
| 135,269 |
|
|
| 12 |
|
|
| 17 |
|
MasterCard |
|
| 1,175,833 |
|
|
| 1,050,041 |
|
|
| 784,316 |
|
|
| 12 |
|
|
| 34 |
|
“Gold” |
|
| 313,874 |
|
|
| 284,340 |
|
|
| 196,911 |
|
|
| 10 |
|
|
| 44 |
|
MasterCard |
|
| 416,327 |
|
|
| 414,559 |
|
|
| 381,215 |
|
|
| - |
|
|
| 9 |
|
Argencard |
|
| 93 |
|
|
| 148 |
|
|
| 200 |
|
|
| (37 | ) |
|
| (26 | ) |
“Platinum” |
|
| 212,354 |
|
|
| 170,202 |
|
|
| 96,068 |
|
|
| 25 |
|
|
| 77 |
|
“Black” |
|
| 233,185 |
|
|
| 180,792 |
|
|
| 109,922 |
|
|
| 29 |
|
|
| 64 |
|
Tarjeta Naranja |
|
| 8,559,157 |
|
|
| 8,817,871 |
|
|
| 9,148,043 |
|
|
| (3 | ) |
|
| (4 | ) |
Naranja(1) |
|
| 4,605,250 |
|
|
| 4,777,286 |
|
|
| 5,045,881 |
|
|
| (4 | ) |
|
| (5 | ) |
Visa |
|
| 3,451,277 |
|
|
| 3,503,792 |
|
|
| 3,529,516 |
|
|
| (1 | ) |
|
| (1 | ) |
MasterCard |
|
| 453,760 |
|
|
| 491,231 |
|
|
| 531,398 |
|
|
| (8 | ) |
|
| (8 | ) |
American Express |
|
| 48,870 |
|
|
| 45,562 |
|
|
| 41,248 |
|
|
| 7 |
|
|
| 10 |
|
Total Credit Cards |
|
| 13,545,870 |
|
|
| 13,915,580 |
|
|
| 13,894,319 |
|
|
| (3 | ) |
|
| — |
|
Total Amount of Purchases (in millions of Pesos) |
|
| 519,837,524 |
|
|
| 636,062,774 |
|
|
| 265,581,905 |
|
|
| (18 | ) |
|
| 139 |
|
(1)For the fiscal years 2018 and 2017, it corresponds to Tarjeta Naranja S.A. and Tarjetas Cuyanas S.A.
Net fee income related to banking activity for the fiscal year ended December 31, 2019 was equal to Ps.15,984 million, as compared to Ps.19,194 million for fiscal year ended December 31, 2018, a 17% decrease.
This decrease was mainly attributable to a Ps.1,416 million decrease in fees related to credit cards transactions, from Ps.9,938 million for the fiscal year ended December 31, 2018 to Ps.8,522 million for the fiscal year ended December 31, 2019. This decrease was due to lower fees recorded by the issuance of credit cards.
For the fiscal year ended December 31, 2019, fees related to deposit accounts were equal to Ps.4,404 million, as compared to Ps.5,355 million for the fiscal year ended December 31, 2018, a Ps.951 million decrease. This decrease was primarily attributable to a decrease in fees recorded by the maintenance of checking accounts.
Net fee income related to Tarjetas Regionales for the fiscal year ended December 31, 2019 amounted to Ps.12,983 million, as compared to Ps.13,737 million for the fiscal year ended December 31, 2018, a 5% decrease. This decrease was primarily the result of a decrease in consumption by credit card users and a decrease in the number of credit cards issued due to the merger with Tarjeta Nevada.
Fiscal Year 2018 compared to Fiscal Year 2017
Our net fee income for the fiscal year ended December 31, 2018 was equal to Ps.32,875 million, as compared to Ps.32,563 million for the fiscal year ended December 31, 2017, a 1% increase. This variation was stable as consequence of increased fees at similar rates of inflation.
Income from credit card transactions, for the fiscal year ended December 31, 2018 was Ps.17,511 million, as compared to Ps.18,565 million for the fiscal year ended December 31, 2017, a Ps.1,054 million decrease. Such was mainly attributable to a decrease in costs associated with the maintenance of issued credit cards as a result of a decrease in credit card fees and stagnant consumer consumption as a result of the inflationary Argentine economy. The total number of credit cards managed for the fiscal year ended December 31, 2018 was,13,915,580 as compared to 13,894,319 for the fiscal year ended December 31, 2017.
Fees related to deposit accounts for the fiscal year endedDecember 31, 2018 were equal to Ps.5,355, as compared to Ps.4,161 million for the fiscal year ended December 31, 2017, a 29% increase. This was due to an increase in the number of deposit accounts managed. Total deposit accounts for the fiscal year ended December 31, 2018 were 4.7 million, as compared to 4.2 million for the fiscal year ended December 31, 2017, an 12% increase.
Total fee expenses for the fiscal year ended December 31, 2018 were equal to Ps.4,655 million, as compared to Ps.5,004 million for the fiscal year ended December 31, 2017, a 7% decrease.
Net fee income related to banking activity for the fiscal year ended December 31, 2018 was equal to Ps.19,194 million, as compared to Ps.18,711 million for fiscal year ended December 31, 2017, a 3% increase.
The fees related to deposit accounts for the fiscal year ended December 31, 2018 amounted Ps.5,355million, as compared to Ps.4,161 million for the fiscal year ended December 31, 2017, a 29% increase.
Revenue generated by credit card transactions for the fiscal year ended December 31, 2018 was equal to Ps.9,938 million, as compared to Ps.9,994 million for the fiscal year ended December 31, 2017, a 1% decrease.
Net fee income related to Tarjetas Regionales for the fiscal year ended December 31, 2018 amounted to Ps.13,737 million, as compared to Ps.16,239 million for the fiscal year ended December 31, 2017, a 15% decrease. This decrease was primarily the result of decrease in consumption by credit card users and a decrease in the number of credit cards issued due to the merger with Tarjeta Nevada.
Net Income from Financial Instruments
Our consolidated net income from financial instruments was comprised of:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Income from Government Securities |
|
| 62,351 |
|
|
| 21,394 |
|
|
| 11,519 |
|
|
| 191 |
|
|
| 86 |
|
Income from Corporate Securities |
|
| 9,327 |
|
|
| 2,377 |
|
|
| 2,417 |
|
|
| 292 |
|
|
| (2 | ) |
Income from Derivative Instruments |
|
| 1,173 |
|
|
| 2,907 |
|
|
| (920 | ) |
|
| (60 | ) |
|
| 416 |
|
Repurchase Transactions |
|
| 1,282 |
|
|
| 3,076 |
|
|
| (915 | ) |
|
| (58 | ) |
|
| 436 |
|
Rate Swaps |
|
| (109 | ) |
|
| (169 | ) |
|
| — |
|
|
| 36 |
|
|
| — |
|
Options |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (100 | ) |
Income from Other Financial Assets |
|
| (21 | ) |
|
| 16 |
|
|
| — |
|
|
| (231 | ) |
|
| — |
|
Total Net Results from Financial Instruments |
|
| 72,830 |
|
|
| 26,694 |
|
|
| 13,016 |
|
|
| 173 |
|
|
| 105 |
|
Fiscal Year 2019 compared to Fiscal Year 2018
Our net income from financial instruments for the fiscal year ended December 31, 2019 was equal to Ps.72,830 million, as compared to Ps.26,694 million for the fiscal year ended December 31, 2018, an 173% increase.
The average position in government securities for the fiscal year ended December 31, 2019 was Ps.130,598 million, as compared to Ps.81,012 million for the fiscal year ended December 31, 2018, a 61% increase. This increase was primarily attributable to an increase of Ps.44,214 million in the average position in Peso-denominated government securities and of Ps.1,372 million in the average position in foreign currency-denominated government securities.
The average position in Peso-denominated government securities for the fiscal year ended December 31, 2019 was Ps.117,132 million, as compared to Ps.68,918 million for the fiscal year ended December 31, 2018, a 70% increase. This increase was primarily attributable to higher balances of securities (LELIQS) issued by the Argentine Central Bank. The average position in foreign currency-denominated government securities for the fiscal year ended December 31, 2019 was Ps.13,466 million, as compared to Ps.12,094 million for the fiscal year ended December 31, 2018, an 11% increase.
The average yield on government securities for the fiscal year ended December 31, 2019 was 50.78%, as compared to 29.05% for fiscal year ended December 31, 2018, a 2,173 bps increase. This increase was primarily attributable to a higher average yield with respect to Peso-denominated government securities.
The average interest rate on Peso-denominated government securities for the fiscal year ended December 31, 2019 was 58.59%, as compared to 33.66% for the fiscal year ended December 31, 2018, a 2,493 bps increase. This increase was primarily attributable to higher interest rates on securities issued by the Argentine Central Bank (LELIQS). The average interest rate of foreign currency-denominated government securities for the fiscal year ended December 31, 2019 was 17.09% loss, as compared to 2.75% for fiscal year ended December 31, 2018. This decrease was primarily attributable to changes in the investment portfolio.
These variations were mainly a result of net income from financial instruments related to Banco Galicia, which represents 96% of our total consolidated net result from financial instruments. Banco Galicia’s net income from financial instruments for the fiscal year ended December 31, 2019 amounted Ps.69,893 million, as compared to Ps.24,594 million for the fiscal year ended December 31, 2018, a 184% increase. This increase was primarily attributable to an increase in income from government securities.
Fiscal Year 2018 compared to Fiscal Year 2017
Our net income from financial instruments for the fiscal year ended December 31, 2018 was equal to Ps.26,694 million, as compared to Ps.13,016 million for the fiscal year ended December 31, 2017, a 105% increase.
The average position in government securities for the fiscal year ended December 31, 2018 was Ps.81,012 million, as compared to Ps.63,438 million for the fiscal year ended December 31, 2017, a 28% increase. This increase was primarily attributable to an increase of Ps.13,736 million in the average position in Peso-denominated government securities and of Ps.3,838 million in the average position in foreign currency-denominated government securities.
The average position in Peso-denominated government securities for the fiscal year ended December 31, 2018 was Ps.68,918 million, as compared to Ps.55,182 million for the fiscal year ended December 31, 2017, a 25% increase. This increase was primarily attributable to higher balances of securities (LELIQS) issued by the Argentine Central Bank. The average position in foreign currency-denominated government securities for the fiscal year ended December 31, 2018 was Ps.12,094 million, as compared to Ps.8,256 million for the fiscal year ended December 31, 2017, a 46% increase.
The average yield on government securities for the fiscal year ended December 31, 2018 was 29.05%, as compared to 16.70% for fiscal year ended December 31, 2017, a 1,235 bps increase. This increase was primarily attributable to a higher average yield with respect to Peso-denominated government securities.
The average interest rate on Peso-denominated government securities for the fiscal year ended December 31, 2018 was 33.66%, as compared to 18.50% for the fiscal year ended December 31, 2017.This increase, was primarily attributable to higher interest rates on securities (LELIQS) issued by the Argentine Central Bank. The average interest rate of foreign currency-denominated government securities for the fiscal year ended December 31, 2018 was 2.75%, as compared to 4.68% for fiscal year ended December 31, 2017, a 193 bps decrease. This decrease was primarily attributable to changes in the investment portfolio.
These variations were mainly a result of net income from financial instruments related to Banco Galicia, which represents 92% of our total consolidated net result from financial instruments. Banco Galicia’s net income from financial instruments for the fiscal year ended December 31, 2018 amounted Ps.24,594 million, as compared to
Ps.10,346 million for the fiscal year ended December 31, 2017, a 138% increase. This increase was primarily attributable to an increase in income from government securities.
Exchange Rate Differences on Gold and Foreign Currency
Fiscal Year 2019 compared to Fiscal Year 2018
Exchange rate differences on gold and foreign currency for the fiscal year ended December 31, 2019 were equal to Ps.8,691 million, as compared to Ps.5,810 million for the fiscal year ended December 31, 2018, a 50% or Ps.2,881 million increase. This increase was primarily the result of an increase in foreign currency brokerage at Banco Galicia for the fiscal year ended December 31, 2019 equal to Ps.12,644 million, as compared to Ps.9,214 million of the fiscal year ended December 31, 2018, a 37% increase.
Fiscal Year 2018 compared to Fiscal Year 2017
Exchange rate differences on gold and foreign currency for the fiscal year ended December 31, 2018 were equal to Ps.5,810 million, as compared to Ps.5,352 million for the fiscal year ended December 31, 2017 a 9% or Ps.458 million increase. This was primarily the result of an increase in foreign currency brokerage at Banco Galicia for the fiscal year ended December 31, 2018 equal to Ps.9,214 million, as compared to Ps.4,527 million of the fiscal year ended December 31, 2017, a 104% increase.
Other Operating Income
The following table sets forth the various components of other operating income.
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Other financial income (1) (2) |
|
| 1,159 |
|
|
| 259 |
|
|
| 90 |
|
|
| 347 |
|
|
| 188 |
|
Commission on Product Package (1) |
|
| 4,175 |
|
|
| 4,201 |
|
|
| 4,313 |
|
|
| (1 | ) |
|
| (3 | ) |
Rental of safe deposit boxes (1) |
|
| 742 |
|
|
| 794 |
|
|
| 788 |
|
|
| (7 | ) |
|
| 1 |
|
Other fee income (1) |
|
| 2,454 |
|
|
| 4,537 |
|
|
| 6,390 |
|
|
| (46 | ) |
|
| (29 | ) |
Other adjustments and interest on miscellaneous receivables |
|
| 2,285 |
|
|
| 2,460 |
|
|
| 702 |
|
|
| (7 | ) |
|
| 250 |
|
Other |
|
| 10,317 |
|
|
| 3,808 |
|
|
| 3,061 |
|
|
| 171 |
|
|
| 24 |
|
Total other operating income |
|
| 21,132 |
|
|
| 16,059 |
|
|
| 15,344 | �� |
|
| 32 |
|
|
| 5 |
|
1) Item included for calculating the efficiency ratio.
2) Item included for calculating the financial margin.
Fiscal Year 2019 compared to Fiscal Year 2018
Other operating income for the fiscal year ended December 31, 2019 was equal to Ps.21,132 million, as compared to Ps.16,059 million for the fiscal year ended December 31, 2018, a 32% increase. This increase was mainly the result of an increase in income from other item for the fiscal year ended December 31, 2019, which was equal to Ps.10,317 million, as compared to Ps.3,808 million for the fiscal year ended December 31, 2018, a 171% increase. The increase in other item includes Ps.6,750 million obtained from the sale of 51% of the stake in Prisma Medios de Pago S.A., which represented 32% of other operating income.
Other operating income related to banking activity was equal to Ps.17,428 million, as compared to Ps.10,690 million for the fiscal year ended December 31, 2018, a 63% increase, mainly attributable to the result of the sale of 51% of the stake on Prisma Medios de Pago S.A.
Other operating income related to Tarjetas Regionales for the fiscal year ended December 31, 2019 was equal to Ps.3,615 million, as compared to Ps.5,664 million for the fiscal year ended December 31, 2018, a 36% decrease.
Other operating income related to insurance activity for the fiscal year ended December 31, 2019 was equal to Ps.396 million, as compared to Ps.252 million for the fiscal year ended December 31, 2018, a 57% increase.
Fiscal Year 2018 compared to Fiscal Year 2017
Other operating income for the fiscal year ended December 31, 2018 was equal to Ps.16,059 million, as compared to Ps.15,344 million for the fiscal year ended December 31, 2017, a 5% increase. This was mainly the result of an increase in income from adjustments and interest on miscellaneous receivables for the fiscal year ended December 31, 2018 which was equal to Ps.2,460 million, as compared to Ps.702 million for the fiscal year ended. December 31, 2017, a 250% increase.
Other operating income related to banking activity for the fiscal year ended December 31, 2018 was equal to Ps.10,690 million, as compared to Ps.7,818 million for the fiscal year ended December 31, 2017 a 37% increase.
Other operating income related to Tarjetas Regionales for the fiscal year ended December 31, 2018 was equal to Ps.5,664 million, as compared to Ps.5,429 million for the fiscal year endedDecember 31, 2017, a 4% increase.
Other operating income related to insurance activity for the fiscal year ended December 31, 2018 was equal to Ps.252 million, as compared to Ps.112 million for the fiscal year ended December 31, 2017, a 125% increase.
Income from Insurance Activities
The following table shows the results generated by insurance activities:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
| 2019 | 2018 | 2017 | 2019/2018 | 2018/2017 | ||||||||||||||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Premiums and Surcharges Accrued(1) |
|
| 5,588 |
|
|
| 7,210 |
|
|
| 8,093 |
|
|
| (22 | ) |
|
| (11 | ) |
Claims Accrued |
|
| (773 | ) |
|
| (824 | ) |
|
| (931 | ) |
|
| (6 | ) |
|
| (11 | ) |
Surrenders |
|
| (14 | ) |
|
| (9 | ) |
|
| (12 | ) |
|
| 56 |
|
|
| (25 | ) |
Life and Ordinary Annuities |
|
| (12 | ) |
|
| (13 | ) |
|
| (14 | ) |
|
| (8 | ) |
|
| (7 | ) |
Underwriting and Operating Expenses |
|
| (1,113 | ) |
|
| (1,977 | ) |
|
| (1,999 | ) |
|
| (44 | ) |
|
| (1 | ) |
Other Income and Expenses |
|
| (3 | ) |
|
| 27 |
|
|
| (38 | ) |
|
| (111 | ) |
|
| (171 | ) |
Total Income from Insurance Activities |
|
| 3,673 |
|
|
| 4,414 |
|
|
| 5,099 |
|
|
| (17 | ) |
|
| (13 | ) |
1) Item included for calculating the efficiency ratio and financial margin.
Fiscal Year 2019 compared to Fiscal Year 2018
Income from insurance activities (excluding administrative expenses and taxes, net of eliminations related to related-party transactions) for the fiscal year ended December 31, 2019 was equal to Ps.3,673 million, as compared to Ps.4,414 million for the fiscal year ended December 31, 2018, a 17% decrease. This decrease was mainly due to the decrease in the volume of earned premiums and surcharges as consequence of the decrease in the amount of policies providing by the products of CFA, resulting from the sale of its stake, a decrease which began in 2017.
Fiscal Year 2018 compared to Fiscal Year 2017
Income from insurance activities (excluding administrative expenses and taxes, net of eliminations related to related-party transactions) for the fiscal year ended December 31, 2018 was equal to Ps.4,414 million, as compared to Ps.5,099 million for the fiscal year ended December 31, 2017, a 13% decrease. This was mainly due to the decrease in the volume of earned premiums and surcharges but was partially offset by a decrease in the number of insurance claims filed. The decrease in premiums and surcharges was due to the decrease in the amount of policies providing by the products of CFA, resulting from the sale of its stake.
Loan and Other Receivables Loss Provisions
Fiscal Year 2019 compared to Fiscal Year 2018
Loan and other receivables loss provisions for the fiscal year ended December 31, 2019 were equal to Ps.22,203 million, as compared to Ps.25,074 million for the fiscal year ended December 31, 2018, an 11% decrease. This decrease was primarily related to lower charges for the evolution of used parameters for PD, EAD and LGD, partially offset by a charge generated for changes to model assumptions and methodologies, as compared to fiscal year ended December 31, 2018.
Loan and other receivables loss provisions related to banking activity were equal to Ps.16,328 million, as compared to Ps.16,726 million for the fiscal year ended December 31, 2018, a 2% decrease. This decrease was due primarily to lower charges for the evolution of used parameters for PD, EAD and LGD related to retail portfolio, partially offset by a charge generated for changes to model assumptions and methodologies, as compared to fiscal year ended December 31, 2018
Loan and other receivables loss provisions related to Tarjetas Regionales for the fiscal year ended December 31, 2019, were equal to Ps.5,941 million, as compared to Ps.8,228 million for the fiscal year ended December 31, 2018, a 28% decrease. This decrease was related to lower charges for the change in the parameters used for PD, EAD and LGD, as compared to fiscal year ended December 31, 2018.
Fiscal Year 2018 compared to Fiscal Year 2017
Loan and other receivables loss provisions for the fiscal year ended December 31, 2018 were equal to Ps.25,074 million, as compared to Ps.11,220 million for the fiscal year ended December 31, 2017, a 123% increase. This increase wasprimarily attributable to (i) an increase in the cost of financial instruments (mainly loans) in arrears, as consequence of the evolution of used parameters for PD, EAD and LGD and (ii) an increase in charges, due to new credit portfolio originated during the year.
Loan and other receivables loss provisions related to banking activity for the fiscal year ended December 31, 2018 were equal to Ps.16,726 million, as compared to Ps.6,162 million for the fiscal year ended December 31, 2017, an 171% increase. This was related to (i) an increase in the cost related to retail loans in default, as consequence of the evolution of used parameters for PD, EAD and LGD and (ii) an increase in charges associated with the new credit portfolio originated during the year, primarily in retail portfolio.
Loan and other receivables loss provisions related to Tarjetas Regionales for the fiscal year ended December 31, 2018 were equal to Ps.8,228 million, as compared to Ps.5,035 million for the fiscal year ended December 31, 2017, a 63% increase. This increase was related to (i) an increase in the cost related to loans in default, as consequence of the evolution of used parameters for PD, EAD and LGD and (ii) an increase in charges associated with the new credit portfolio originated during the year.
Personnel Expenses
Fiscal Year 2019 compared to Fiscal Year 2018
Personnel expenses for the fiscal year ended December 31, 2019 were equal to Ps.24,449 million, as compared to Ps.26,192 million for the fiscal year ended December 31, 2018, a Ps.1,743 million decrease. This decrease was primarily attributable to a 5% decrease in the number of employees.
Personnel expenses related to banking activity for the fiscal year ended December 31, 2019 were equal to Ps.17,852 million, as compared to Ps.17,742 million for the fiscal year ended December 31, 2018, a 1% increase.
Personnel expenses related to Tarjetas Regionales for the fiscal year ended December 31, 2019 were equal to Ps.5,541 million, as compared to Ps.7,371 million for the fiscal year ended December 31, 2018, a 25% decrease. This decrease was primarily attributable to the merger of Tarjeta Naranja and Tarjeta Nevada that started in 2018.
Personnel expenses related to insurance activity for the fiscal year ended December 31, 2019 were equal to Ps.815 million, as compared to Ps.884 million for the fiscal year ended December 31, 2018, an 8% decrease.
Fiscal Year 2018 compared to Fiscal Year 2017
Personnel expenses for the fiscal year ended December 31, 2018 were equal to Ps.17,026Ps.26,192 million, as compared to Ps.17,089Ps.26,288 million fofor the fiscal year ended December 31, 2017, a Ps.63Ps.96 million decrease. This lower decrease was primarily attributable to an agreement with labor unions to index employee salaries for inflation with the objective of maintaining wages in line with inflation.
Personnel expenses related to banking activity for the fiscal year ended December 31, 2018 were equal to Ps.11,544Ps.17,742 million, as compared to Ps.11,356Ps.17,469 million offor the fiscal year ended December 31, 2017, a 2% increase.
Personnel expenses related to Regional Credit CardsTarjetas Regionales for the fiscal year ended December 31, 2018 were equal to Ps.4,791Ps.7,371 million, as compared to Ps.5,011Ps.7,708 million for the fiscal year ended December 31, 2017, a 4% decrease. This decrease was primarily attributable to the reorganization as a resultmerger of the mergerTarjeta Nevada with Tarjeta Nevada.Naranja.
Personnel expenses related to insurance activity for the fiscal year ended December 31, 2018 were equal to Ps.575Ps.884 million, as compared to Ps.552Ps.848 million for the fiscal year ended DecemeberDecember 31, 2017, a 4% increase.
Administrative Expenses
The following table sets forth the components of our consolidated administrative expenses:
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Fees and Compensation for Services |
|
| 2,924 |
|
|
| 1,871 |
|
|
| 798 |
|
|
| 56 |
|
|
| 134 |
|
Directors’ and Syndics' Fees |
|
| 163 |
|
|
| 268 |
|
|
| 207 |
|
|
| (39 | ) |
|
| 29 |
|
Advertising and Publicity |
|
| 2,174 |
|
|
| 1,966 |
|
|
| 1,904 |
|
|
| 11 |
|
|
| 3 |
|
Taxes |
|
| 5,179 |
|
|
| 5,183 |
|
|
| 5,419 |
|
|
| — |
|
|
| (4 | ) |
Maintenance and Repairs |
|
| 3,607 |
|
|
| 2,178 |
|
|
| 1,594 |
|
|
| 66 |
|
|
| 37 |
|
Electricity and Communication |
|
| 1,825 |
|
|
| 1,479 |
|
|
| 1,415 |
|
|
| 23 |
|
|
| 5 |
|
Entertainment and Transportation Expenses |
|
| 127 |
|
|
| 157 |
|
|
| 201 |
|
|
| (19 | ) |
|
| (22 | ) |
Stationery and Office Supplies |
|
| 378 |
|
|
| 324 |
|
|
| 310 |
|
|
| 17 |
|
|
| 5 |
|
Rentals(1) |
|
| 100 |
|
|
| 1,271 |
|
|
| 1,136 |
|
|
| (92 | ) |
|
| 12 |
|
Administrative Services Hired |
|
| 2,475 |
|
|
| 1,991 |
|
|
| 1,979 |
|
|
| 24 |
|
|
| 1 |
|
Security |
|
| 979 |
|
|
| 859 |
|
|
| 961 |
|
|
| 14 |
|
|
| (11 | ) |
Insurance |
|
| 132 |
|
|
| 699 |
|
|
| 701 |
|
|
| (81 | ) |
|
| — |
|
Others |
|
| 4,254 |
|
|
| 6,489 |
|
|
| 5,563 |
|
|
| (34 | ) |
|
| 17 |
|
Total Administrative Expenses |
|
| 24,317 |
|
|
| 24,735 |
|
|
| 22,188 |
|
|
| (2 | ) |
|
| 11 |
|
1) As of fiscal year 2019, due to the application of IFRS 16, rentals are recognized as a right-of-use asset and a financial liability, consequently the results are exposed in depreciation and impairment of assets and other operating expenses, respectively.
Fiscal Year 2019 compared to Fiscal Year 2018
Administrative expenses for the fiscal year ended December 31, 2019 were equal to Ps.24,317 million, as compared to Ps.24,735 million for the fiscal year ended December 31, 2018, a 2% decrease. This decrease was attributable to (i) Ps.2,235 million decrease in other administrative expenses, due to Ps.2,059 million related to armored transportation services; and (ii) Ps.1,171 million decrease in rentals, as consequence of the application of IFRS 16. This decrease was offset by (i) Ps.1,429 million increase in maintenance; and repairs and (ii) Ps.1,053 million increase in fees and compensation for services.
Fees and compensation for services for the fiscal year ended December 31, 2019 were equal to Ps.2,924 million, as compared to Ps.1,871 million for the fiscal year ended December 31, 2018, a 56% increase. This increase was due to the hiring of consultants for Digital Transformation projects.
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018/2017 |
| |||
|
| (in millions of Pesos, except percentages) |
| |||||||||
Fees and Compensation for Services |
|
| 1,217 |
|
|
| 519 |
|
|
| 134 |
|
Directors’ and Syndics’ Fees |
|
| 174 |
|
|
| 134 |
|
|
| 30 |
|
Advertising and Publicity |
|
| 1,278 |
|
|
| 1,238 |
|
|
| 3 |
|
Taxes |
|
| 3,369 |
|
|
| 3,523 |
|
|
| (4 | ) |
Maintenance and Repairs |
|
| 1,416 |
|
|
| 1,036 |
|
|
| 37 |
|
Electricity and Communication |
|
| 961 |
|
|
| 920 |
|
|
| 4 |
|
Entertainment and Transportation Expenses |
|
| 102 |
|
|
| 131 |
|
|
| (22 | ) |
Stationery and Office Supplies |
|
| 211 |
|
|
| 202 |
|
|
| 4 |
|
Rentals |
|
| 826 |
|
|
| 738 |
|
|
| 12 |
|
Administrative Services Hired |
|
| 1,294 |
|
|
| 1,287 |
|
|
| 1 |
|
Security |
|
| 559 |
|
|
| 625 |
|
|
| (11 | ) |
Insurance |
|
| 454 |
|
|
| 455 |
|
|
| — |
|
Others |
|
| 4,218 |
|
|
| 3,616 |
|
|
| 17 |
|
Total Administrative Expenses |
|
| 16,079 |
|
|
| 14,424 |
|
|
| 11 |
|
| 120 |
Maintenance and repairs for the fiscal year ended December 31, 2019 were equal to Ps.3,607 million, as compared to Ps.2,178 million for the fiscal year ended December 31, 2018, a 66% increase. This increase was as consequence of higher expenses related to maintenance of systems related to Banco Galicia.
Administrative expenses related to banking activity for the fiscal year ended December 31, 2019 were equal to Ps.17,545 million, as compared to Ps.16,087 million for the fiscal year ended December 31, 2018, a 9% increase.
Administrative expenses related to Tarjetas Regionales for the fiscal year ended December 31, 2019 were equal to Ps.6,060 million, as compared to Ps.7,623 million for the fiscal year ended December 31, 2018, a 21% decrease.
Administrative expenses related to insurance activity for the fiscal year ended December 31, 2019 were equal to Ps.523 million, as compared to Ps.629 million for the fiscal year ended December 31, 2018, a 17% decrease.
Fiscal Year 2018 compared to Fiscal Year 2017
Administrative expenses for the fiscal year ended December 31, 2018 were equal to Ps.16,079Ps.24,735 million, as compared to Ps.14,424Ps.22,188 million for the fiscal year ended December 31, 2017, an 11% increase.
Fees and compensation for services for the fiscal year ended December 31, 2018 were equal to Ps.1,217Ps.1,871 million, as compared to Ps.519Ps.798 million for the fiscal year ended December 31, 2017, a 134% increase. Our remaining administrative expenses remained stable year-over-year.
Administrative expenses related to banking activity for the fiscal year ended December 31, 2018 were equal to Ps.10,466Ps.16,087 million, as compared to Ps.9,287Ps.14,287 million for the fiscal year ended December 31, 2017, a 13% increase.
Administrative expenses related to Regional Credit CardsTarjetas Regionales for the fiscal year ended December 31, 2018 were equal to Ps.4,955Ps.7,623 million, as compared to Ps.4,516Ps.6,948 million for the fiscal year ended December 31, 2017, a 10% increase. This increase was primarily attributable to an increase in costs related to different services rendered.
Administrative expenses related to insurance activity for the fiscal year ended December 31, 2018 were equal to Ps.409Ps.629 million, as compared to Ps.450Ps.692 million for the fiscal year ended December 31, 2018, a 9% decrease.
Other Operating Expenses
|
| For the Year Ended December 31, |
|
| Change (%) |
| ||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019/2018 |
|
| 2018/2017 |
| |||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||
Contributions to the Deposit Insurance Scheme (1) (2) |
|
| 863 |
|
|
| 786 |
|
|
| 675 |
|
|
| 10 |
|
|
| 16 |
|
Other financial expenses (1) (2) |
|
| 1,835 |
|
|
| 840 |
|
|
| 492 |
|
|
| 118 |
|
|
| 71 |
|
Turnover tax (1) |
|
| 13,085 |
|
|
| 13,303 |
|
|
| 10,732 |
|
|
| (2 | ) |
|
| 24 |
|
On financial services (2) |
|
| 8,881 |
|
|
| 7,206 |
|
|
| 6,179 |
|
|
| 23 |
|
|
| 17 |
|
On fees |
|
| 3,644 |
|
|
| 5,729 |
|
|
| 4,310 |
|
|
| (36 | ) |
|
| 33 |
|
On other items |
|
| 560 |
|
|
| 368 |
|
|
| 243 |
|
|
| 52 |
|
|
| 51 |
|
Credit-card-relates expenses (2) |
|
| 4,441 |
|
|
| 4,526 |
|
|
| 4,029 |
|
|
| (2 | ) |
|
| 12 |
|
Other expenses from services (2) |
|
| 2,188 |
|
|
| 3,273 |
|
|
| 3,350 |
|
|
| (33 | ) |
|
| (2 | ) |
Charges for other provisions |
|
| 1,701 |
|
|
| 1,625 |
|
|
| 555 |
|
|
| 5 |
|
|
| 193 |
|
Interest on leases |
|
| 376 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Claims |
|
| 336 |
|
|
| 478 |
|
|
| 306 |
|
|
| (30 | ) |
|
| 56 |
|
Other |
|
| 945 |
|
|
| 1,165 |
|
|
| 2,329 |
|
|
| (19 | ) |
|
| (50 | ) |
Total other operating expenses |
|
| 25,770 |
|
|
| 25,996 |
|
|
| 22,468 |
|
|
| (1 | ) |
|
| 16 |
|
(1) Item included for calculating the efficiency ratio.
(2) Item included for calculating the financial margin.
Fiscal Year 2019 compared to Fiscal Year 2018
Other operating expenses for the fiscal year ended December 31, 2019 were equal to Ps.25,770 million, as compared to Ps.25,996 million of the fiscal year ended December 31, 2018, an 1% decrease. This decrease was primarily attributable to a 36% decrease in over tax on fees and a 33% decrease in other expenses from services, offset by a 23% increase in over tax related to financial services and a 118% increase in other financial expenses.
Other operating expenses related to banking activity for the fiscal year ended December 31, 2019 were equal to Ps.20,975 million, as compared to Ps.19,725 million of the fiscal year ended December 31, 2018, a 6% increase.
Other operating expenses related to Tarjetas Regionales for the fiscal year ended December 31, 2019 were equal to Ps.4,685 million, as compared to Ps.6,160 million for the fiscal year ended December 31, 2018, a 24% decrease.
Fiscal Year 2018 compared to Fiscal Year 2017
Other operating expenses for the fiscal year ended December 31, 2018 were equal to Ps.25,996 million, as compared to Ps.22,468 million of the fiscal year endedDecember 31, 2017, a 16% increase. This increase was primarily attributable to a 24% increase in turnover tax.
Other operating expenses related to banking activity for the fiscal year ended December 31, 2018 were equal to Ps.19,725 million, as compared to Ps.16,163 million of the fiscal year endedDecember 31, 2017, a 22% increase.
Other operating expenses related to Tarjetas Regionales for the fiscal year ended December 31, 2018 were equal to Ps.6,160 million, as compared to Ps.6,183 million of the fiscal year ended December 31, 2017, a Ps.23 million decrease.
Loss on Net Monetary Position
Fiscal Year 2019 compared to Fiscal Year 2018
Loss on net monetary position for the fiscal year ended December 31, 2019 was equal to Ps.30,798 million, as compared to Ps.27,788 million for the fiscal year ended December 31, 2018, a 11% increase.
Loss on net monetary position related to banking activity for the fiscal year ended December 31, 2019 was equal to Ps.24,754 million, as compared to Ps.20,007 million for the fiscal year ended December 31, 2019, a 24% increase.
Loss on net monetary position related to Tarjetas Regionales for the fiscal year ended December 31, 2019 was equal to Ps.4,631 million, as compared to Ps.5,914 million for the fiscal year ended December 31, 2018, a 22% decrease.
Loss on net monetary position related to insurance activity for the fiscal year ended December 31, 2019 was equal to Ps.761 million, as compared to Ps.862 million for the fiscal year ended December 31, 2018, a 12% decrease.
Fiscal Year 2018 compared to Fiscal Year 2017
Loss on net monetary position for the fiscal year ended December 31, 2018 was equal to Ps.27,788 million, as compared to Ps.10,496 million for the fiscal year ended December 31, 2017, a 9%165% increase.
Loss on net monetary position related to banking activity for the fiscal year ended December 31, 2018 was equal to Ps.20,007 million, as compared to Ps.4,757 million for the fiscal year ended December 31, 2017 a 321% increase.
Loss on net monetary position related to Tarjetas Regionales for the fiscal year ended December 31, 2018 was equal to Ps.5,914 million, as compared to Ps.3,248 million of the fiscal year ended December 31, 2017, a 82% increase.
Loss on net monetary position related to insurance activity for the fiscal year ended December 31, 2018 was equal to Ps.862 million, as compared to Ps.530 million of the fiscal year ended December 31, 2017, a 63% increase.
Income Tax from Continuing Operations
Fiscal Year 2019 compared to Fiscal Year 2018
Income tax from continuing operations for the fiscal year ended December 31, 2019 was equal to Ps.13,038 million, as compared to Ps.10,634 million for the fiscal year ended December 31, 2018, a 23% increase.
Income tax from continuing operations related to banking activity for the fiscal year ended December 31, 2019 was equal to Ps.12,284 million, as compared to Ps.7,706 million for the fiscal year ended December 31, 2018, a 59% increase.
Income tax from continuing operations related to Tarjetas Regionales for the fiscal year ended December 31, 2019 was equal to Ps.385 million, as compared to Ps.1,978 million for the fiscal year ended December 31, 2018, a 81% decrease.
Income tax from continuing operations related to insurance activity for the fiscal year ended December 31, 2019 was equal to Ps.343 million, as compared to Ps.477 million for the fiscal year ended December 31, 2018, a 28% decrease.
Fiscal Year 2018 compared to Fiscal Year 2017
Income tax from continuing operations for the fiscal year ended December 31, 2018 was equal to Ps.10,634 million, as compared to Ps.11,259 million for the fiscal year ended December 31, 2017, a 6% decrease.
Income tax from continuing operations related to banking activity for the fiscal year ended December 31, 2018 was equal to Ps.7,706 million, as compared to Ps.5,663 million for the fiscal year ended December 31, 2017, a 36% increase.
Income tax from continuing operations related to Tarjetas Regionales for the fiscal year ended December 31, 2018 was equal to Ps.1,978 million, as compared to Ps.4,268 million for the fiscal year ended December 31, 2017, a 54% decrease.
Income tax from continuing operations related to insurance activity for the fiscal year ended December 31, 2018 was equal to Ps.477 million, as compared to Ps.631 million for the fiscal year ended December 31, 2017, a 24% decrease.
Consolidated Assets
The main components of our consolidated assets as of the dates indicated below were as follows:
|
| As of December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Amounts |
|
| % |
|
| Amounts |
|
| % |
|
| Amounts |
|
| % |
| ||||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||||||
Cash and due from banks |
|
| 130,649 |
|
|
| 19 |
|
|
| 220,456 |
|
|
| 25 |
|
|
| 133,903 |
|
|
| 18 |
|
Debt Securities |
|
| 65,690 |
|
|
| 10 |
|
|
| 116,813 |
|
|
| 13 |
|
|
| 65,760 |
|
|
| 9 |
|
Loans and other financing |
|
| 358,559 |
|
|
| 52 |
|
|
| 434,900 |
|
|
| 50 |
|
|
| 437,430 |
|
|
| 58 |
|
Other Financial Assets |
|
| 78,444 |
|
|
| 11 |
|
|
| 58,925 |
|
|
| 7 |
|
|
| 60,060 |
|
|
| 8 |
|
Property, Plant and Equipment |
|
| 32,964 |
|
|
| 5 |
|
|
| 29,786 |
|
|
| 3 |
|
|
| 28,011 |
|
|
| 4 |
|
Intangible Assets |
|
| 8,693 |
|
|
| 1 |
|
|
| 7,057 |
|
|
| 1 |
|
|
| 2,654 |
|
|
| — |
|
Other Assets |
|
| 10,481 |
|
|
| 2 |
|
|
| 7,499 |
|
|
| 1 |
|
|
| 8,702 |
|
|
| 1 |
|
Assets available for sale |
|
| 39 |
|
|
| — |
|
|
| 935 |
|
|
| - |
|
|
| 16,707 |
|
|
| 2 |
|
Total Assets |
|
| 685,519 |
|
|
| 100 |
|
|
| 876,371 |
|
|
| 100 |
|
|
| 753,227 |
|
|
| 100 |
|
Of our Ps.685,409 million total assets as of December 31, 2019, Ps.616,356 million, or 90%, corresponded to Banco Galicia and Ps.66,117 million, or 9,6% corresponded to Tarjetas Regionales on a consolidated basis. The remaining was primarily attributable to Sudamericana on a consolidated basis. The composition of our assets demonstrates a decrease in the amounts of main line items.
The item “Cash and Due from Banks” included cash for Ps.130,649 million, balances held at the Argentine Central Bank for Ps.75,542 million and balances held in correspondent banks for Ps.2,379 million. The balance held at the Argentine Central Bank is used for meeting the minimum cash requirements set by the Argentine Central Bank.
Our holdings of debt securities as of December 31, 2019 was Ps.65,690 million. Our holdings of government and private securities are shown in more detail in Item 4. “Information on the Company”—B. “Operating Overview”─ “Selected Statistical Information”— “Debt and Equity Securities”.
Our total net loans and other financing were Ps.358,559 million as of December 31, 2019, of which Ps.309,329 million corresponded to Banco Galicia’ portfolio and Ps.48,427 corresponded to Tarjetas Regionales’ portfolios, the remaining amount to secured loans held by Sudamericana. For more information on loan and other financing activities portfolios, see Item 4. “Information on the Company”—B. “Operating Overview”─ “Selected Statistical Information”— “Loan and Other Financing Portfolio”.
Exposure to the Argentine Public Sector
The following table shows our total net exposure, primarily related to Banco Galicia, to the Argentine public sector as of December 31, 2019 and 2018 and 2017.
|
| As of December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
| |||||||||
Government securities net position |
|
| 83,407 |
|
|
| 130,725 |
|
|
| 66,069 |
|
Lebacs |
|
| — |
|
|
| 83 |
|
|
| 41,448 |
|
Leliq |
|
| 58,141 |
|
|
| 107,924 |
|
|
| — |
|
Botes |
|
| 10,830 |
|
|
| 13,842 |
|
|
| — |
|
Other |
|
| 14,436 |
|
|
| 8,876 |
|
|
| 24,621 |
|
Other Financing Assets |
|
| 30,057 |
|
|
| 3,168 |
|
|
| 103 |
|
Repurchase agreement transactions - BCRA |
|
| 29,996 |
|
|
| 3,080 |
|
|
| — |
|
Loans and Others Financing |
|
| 29 |
|
|
| 20 |
|
|
| 19 |
|
Certificate of Participation in Trusts |
|
| 32 |
|
|
| 68 |
|
|
| 84 |
|
Total (1) |
|
| 113,464 |
|
|
| 133,893 |
|
|
| 66,172 |
|
(1) Does not include deposits with the Argentine Central Bank, which constitute one of the items by which Banco Galicia complies with the Argentine Central Bank’s minimum cash requirements.
As of December 31, 2019, the exposure to the public sector amounted to Ps.113,464 million, a decrease of 15% as compared to Ps.133,893 million for the year ended December 31, 2018. Excluding the debt securities issued by the Argentine Central Bank, the Bank’s exposure amounted to Ps.55,323 million equal to 8% of total assets.
Funding
Banco Galicia’s and Tarjetas Regionales’ lending activities are our main asset-generating businesses. Accordingly, most of our borrowing and liquidity needs are associated with these activities. We also have liquidity needs at the level of our holding company, which are discussed in Item 5. “Operating and Financial Review and Prospects”—B. “Liquidity and Capital Resources”—“Liquidity-Holding Company on an Individual Basis”. Our objective is to maintain cost-effective and well diversified funding to support current and future asset growth in our businesses. For this, we rely on diverse sources of funding. The use and availability of funding sources depends on market conditions, both local and foreign, and prevailing interest rates. Market conditions in Argentina include a structurally limited availability of domestic long-term funding.
Our funding activities and liquidity planning are integrated into our asset and liability management and our financial risks management and policies. The liquidity policy of Grupo Financiero Galicia is described in Item 5. “Operating and Financial Review and Prospects”—B. “Liquidity and Capital Resources”—“Liquidity Management” and our other financial risk policies, including interest rate, currency and market risks are described in Item 11. “Quantitative and Qualitative Disclosures about Market Risk”. Our funding sources are discussed below.
Traditionally, our primary source of funding has been Banco Galicia’s deposit taking activity. Although Banco Galicia has access to Argentine Central Bank financing, management does not view this as a primary source of funding in line with our overall strategies discussed herein. Other important sources of funding have traditionally included issuing foreign currency-denominated medium and long-term debt securities issued in foreign capital markets and borrowing from international banks and multilateral credit agencies. Banco Galicia entered into a master loan agreement with the IFC in 2016, for US$130 million, divided into two parts, one of them with the purpose of funding long-term loans to SMEs and the other part with the purpose of funding renewable energy project and efficiency energy power project. Additionally, Banco Galicia entered into master bond agreements with the IFC for US$100 million in order to expand its loan program for environmental efficiency projects.
Selling government securities under repurchase agreement transactions has been a recurrent source of funding for Banco Galicia. Although not presently a key source of funding, repurchase agreement transactions are part of the liquidity policy of the Bank. Within its liquidity policy, Banco Galicia considers its unencumbered liquid government securities holdings as part of its available excess liquidity. See Item 5. “Operating and Financial Review and Prospects” —B. “Liquidity and Capital Resources”—“Liquidity Management”.
Tarjetas Regionales fund their business through the issuance of notes in the local and international capital markets, borrowing from local financial institutions and debt with merchants generated in the ordinary course of business of any credit card issuing company. In 2019, Tarjetas Regionales issued notes in an amount equal to Ps.1,584 million (approximately US$40.3 million).
Below is a breakdown of our funding as of the dates indicated:
|
| As of December 31, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Amounts |
|
| % |
|
| Amounts |
|
| % |
|
| Amounts |
|
| % |
| ||||||
|
| (in millions of Pesos, except percentages) |
| |||||||||||||||||||||
Deposits |
|
| 393,735 |
|
|
| 57 |
|
|
| 553,946 |
|
|
| 63 |
|
|
| 455,909 |
|
|
| 61 |
|
Checking Accounts |
|
| 67,566 |
|
|
| 10 |
|
|
| 61,309 |
|
|
| 7 |
|
|
| 75,223 |
|
|
| 10 |
|
Savings Accounts |
|
| 177,360 |
|
|
| 26 |
|
|
| 305,959 |
|
|
| 35 |
|
|
| 228,057 |
|
|
| 30 |
|
Time Deposits |
|
| 140,333 |
|
|
| 20 |
|
|
| 174,244 |
|
|
| 20 |
|
|
| 145,067 |
|
|
| 19 |
|
Time Deposits - UVA |
|
| 750 |
|
|
| — |
|
|
| 3,053 |
|
|
| — |
|
|
| 1,368 |
|
|
| — |
|
Others |
|
| 2,635 |
|
|
| — |
|
|
| 3,179 |
|
|
| — |
|
|
| 2,916 |
|
|
| 2 |
|
Interests and Adjustments |
|
| 5,091 |
|
|
| 1 |
|
|
| 6,202 |
|
|
| 1 |
|
|
| 3,278 |
|
|
| — |
|
Credit Lines |
|
| 22,724 |
|
|
| 3 |
|
|
| 29,914 |
|
|
| 3 |
|
|
| 17,873 |
|
|
| 2 |
|
Argentine Central Bank |
|
| 23 |
|
|
| — |
|
|
| 44 |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
Domestic Financial Institutions |
|
| 5,972 |
|
|
| 1 |
|
|
| 11,234 |
|
|
| 1 |
|
|
| 6,411 |
|
|
| 1 |
|
International Banks and Credit Agencies |
|
| 16,729 |
|
|
| 2 |
|
|
| 18,636 |
|
|
| 2 |
|
|
| 11,427 |
|
|
| 2 |
|
Debt Securities (Unsubordinated and Subordinated) (1) |
|
| 44,740 |
|
|
| 7 |
|
|
| 61,151 |
|
|
| 7 |
|
|
| 42,162 |
|
|
| 6 |
|
Other obligations (2) |
|
| 107,485 |
|
|
| 16 |
|
|
| 136,218 |
|
|
| 16 |
|
|
| 133,479 |
|
|
| 19 |
|
Shareholders’ Equity |
|
| 116,835 |
|
|
| 17 |
|
|
| 95,142 |
|
|
| 11 |
|
|
| 103,804 |
|
|
| 14 |
|
Total |
|
| 685,519 |
|
|
| 160 |
|
|
| 876,371 |
|
|
| 100 |
|
|
| 753,227 |
|
|
| 100 |
|
(1) Each item includes principal, interest accrued, exchange rate differences and premiums payable, as well as UVA adjustment, where applicable.
(2) It includes debts with stores due to credit card transactions, collections on account of third parties in Pesos and foreign currency, miscellaneous obligations and allowances, among others.
The main sources of funds are deposits from the private sector, lines of credit extended by local banks and entities, international banks and multilateral credit agencies, repurchase transactions mainly related to government securities, mid- and long-term debt securities placed in the local and international capital market and debts with stores due to credit card transactions.
As of December 31, 2019, deposits represented 57% of our funding, down from 63% as of December 31, 2018. Our deposit base decreased 29% in 2019 as compared to 2018. During fiscal year 2019, the Ps.160,211 million decrease in deposits was due to a decrease in transactional deposits (deposits in savings accounts and time deposits, with decreases of 42% and 19%, respectively). For more information on deposits, see Item 4. “Information on the Company”—B. “Business Overview” — “Selected Statistical Information”—“Deposits”.
As of December 31, 2019, credit lines from international banks and credit agencies amounted to Ps.16,729 million. Of this total, Ps.9,970 million corresponded to prefinancing and foreign trade transactions; Ps.6,259 million corresponded to amounts received from the IFC pursuant to a loan agreement and Ps.500 million corresponded to amounts received from the IDB pursuant to a loan agreement.
Our debt securities outstanding (only principal) were Ps.44,740 million as of December 31, 2019, as compared to Ps.61,151 million as of December 31, 2018.
Of the total debt securities outstanding as of December 31, 2019, Ps.23,071 million corresponded to Peso-denominated debt, of which Ps.12,733 million corresponded to debt securities issued by Banco Galicia and Ps.10,338 million corresponded to debt securities issued by Tarjeta Naranja (which includes debt securities issued by Tarjetas Cuyanas). The remaining Ps.21,669 million of outstanding debt securities corresponded to foreign currency-denominated debt in respect of subordinated debt securities due in 2026 issued by Banco Galicia and the green bond with the IFC.
As of December 31, 2019, the breakdown of our debt was as follows:
|
| December 31, 2019 |
| |||||||||
|
| Currency |
| Expiration |
| Annual Interest Rate |
|
| Total(*) |
| ||
|
| (in millions of Pesos, except for rates) |
| |||||||||
Banco Galicia |
|
|
|
|
|
|
|
|
|
|
|
|
ON Subordinated |
| US$ |
| 07.19.26 |
| (2)(3) |
|
|
| 15,499 |
| |
Green Bond |
| US$ |
| 06.21.25 |
| 5.90% |
|
|
| 6,170 |
| |
Class III |
| $ |
| 02.17.20 |
| (1)(3) |
|
|
| 1,060 |
| |
Class IV |
| $ |
| 05.18.20 |
| (2)(4) |
|
|
| 1,730 |
| |
Class V Series I |
| $ |
| 04.26.20 |
|
| (5) |
|
|
| 3,868 |
|
Class V Series II |
| $ |
| 04.26.21 |
|
| (6) |
|
|
| 1,803 |
|
Class VII |
| $ |
| 05.25.20 |
|
| (7) |
|
|
| 4,272 |
|
Tarjeta Naranja |
|
|
|
|
|
|
|
|
|
|
|
|
XXXIV Series II |
| $ |
| 06.29.20 |
| Minimum 32% Rate/Badlar +4.67% |
|
|
| 396 |
| |
XXXV Series II |
| $ |
| 09.27.20 |
| Minimum 26% Rate/Badlar +3.99% |
|
|
| 655 |
| |
XXXVII |
| $ |
| 04.11.22 |
| Minimum 15% Rate/Badlar + 3.50% |
|
|
| 4,342 |
| |
XL Series II |
| $ |
| 10.10.20 |
| Minimum 27% Rate/Badlar + 3.69% |
|
|
| 1,464 |
| |
XLI Series II |
| $ |
| 05.15.20 |
| Badlar + 10% |
|
|
| 351 |
| |
XLIII |
| $ |
| 08.18.20 |
| Badlar + 7% |
|
|
| 1,483 |
| |
Tarjeta Naranja(**) |
|
|
|
|
|
|
|
|
|
|
|
|
XXV |
| $ |
| 07.26.20 |
| Minimum 30% Rate/Badlar + 3.94% |
|
|
| 424 |
| |
XXVI Series II |
| $ |
| 10.24.20 |
| Minimum 26% Rate/Badlar + 4.00% |
|
|
| 373 |
| |
XXVII Series II |
| $ |
| 02.10.20 |
| Minimum 23.5% Rate/Badlar + 3.50% |
|
|
| 476 |
| |
XXVIII Series II |
| $ |
| 06.09.21 |
| Minimum 25% Rate/Badlar + 3.70% |
|
|
| 374 |
| |
Total |
|
|
|
|
|
|
|
|
|
| 44,740 |
|
(*) Includes principal and interest.
(**) Debt securities absorbed as part of the merger with Tarjeta Naranja S.A.
(1) As specified in the terms and conditions of the issuance, they were converted to Ps.2,360,360 Investor assumes the exchange rate risk since the service of interest and principal is calculated based on the principal amount in Pesos converted into US Dollars on each payment date.
(2) The net proceeds from this issuance of negotiable obligations was applied to investments in working capital, loans, other loans and other uses envisaged by the provisions of the Law on Negotiable Obligations and the Argentine Central Bank regulations.
(3) Variable rate equal to the simple arithmetic average of private Badlar, plus 2.69%, which will be payable quarterly as from May 17, 2017 onwards.
(4) Variable rate equal to the simple arithmetic average of private Badlar, plus 2.98%, which will be payable quarterly as from August 18, 2017 onwards.
(5) Annual nominal fixed 25.98% rate; principal and interest will be settled in full upon maturity.
(6) Variable rate equal to the simple arithmetic average of private Badlar, plus 3.5%, which will be payable quarterly as from July 26, 2018 onwards. Principal in respect of this Series will be repaid upon maturity.
(7) Variable rate equivalent to simple arithmetical average of private Badlar rates plus 4%, to be paid on February 25, 2020 and May 25, 2020.
For more information see “—Contractual Obligations” below.
Ratings
The following are our ratings as of the date of this annual report:
December 31, 2019 | ||||||||
Standard & Poor’s | Fitch Argentina | Evaluadora Latinoamericana | Moody’s | |||||
Local Ratings | ||||||||
Grupo Financiero Galicia S.A. | ||||||||
Rating of Shares | 1 | |||||||
Banco de Galicia | ||||||||
Counterparty Rating | raBBB+ | |||||||
Debt (Long-Term / Short Term) | AA+(arg)/A1+(arg) | |||||||
Subordinated Debt | A+ | |||||||
Deposits (Long Term / Short Term) | raBBB+ / raA-2 | |||||||
Deposits (Local Currency / Foreign Currency) | B1.ar / Ca.ar | |||||||
Trustee | TQ2+ | |||||||
Tarjeta Naranja S.A. | ||||||||
Medium-/Long-Term Debt | AA-(arg) | |||||||
Tarjetas Cuyanas S.A. | ||||||||
Long-Term Debt | AA-(arg) | |||||||
International Ratings | ||||||||
Banco de Galicia | ||||||||
Long-Term Debt | B- | Ca | ||||||
Subordinated Debt | CCC | Ca | ||||||
(*) See “—Contractual Obligations”.
Debt Programs
On March 9, 2009, Grupo Financiero Galicia’s shareholders, during an ordinary shareholders’ meeting, and the Board of Directors created a global short‑, medium‑ and long‑term notes program, for a maximum outstanding amount of US$60 million. This program was authorized by the CNV pursuant to Resolution No.16,113 of April 29, 2009.
In August 2012, during an extraordinary shareholders’ meeting, it was decided to ratify the decision made at the ordinary and extraordinary shareholders’ meeting held in April 2010 with regard to the approval of the US$40 million increase in the amount of Grupo Financiero Galicia’s global notes program. Therefore, once approved by the CNV, the amount was for up to US$100 million or its equivalent in other currencies. On May 8, 2014, the CNV, pursuant to Resolution No.17,343, granted an extension of the debt program for another five-year period.
On January 30, 2014, Grupo Financiero Galicia issued its Class V notes, in two series, in an aggregate principal amount of Ps.180 million with the following terms and conditions: (i) Ps.102 million of Series I notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 4.25%, with an 18 month maturity and (ii) Ps.78 million of Series II notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 5.25%, with a 36 month maturity. Both series pay interest on a quarterly basis. In addition, certain of the Class V notes were subscribed for with Class III notes for a face value of Ps.20,622,455.
In October 2014, Grupo Financiero Galicia issued its Class VI notes, in two series, in an aggregate principal amount of Ps.250.0 million with the following terms and conditions: (i) Ps.140.2 million of Series I notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 3.25%, with an 18 month maturity and (ii) Ps.109.8 million of Series II notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 4.25%, with a 36 month maturity. Both series pay interest on a quarterly basis. In addition, certain of the Class VI notes were subscribed with Class IV notes for a face value of Ps.30,997,382.
In July 2015, Grupo Financiero Galicia issued its Class VII notes for an aggregate principal amount of Ps.160 million. Such notes mature on the date that is 24 months after the date of their issuance and accrue interest at a fixed rate equal to 27% from the date of their issuance through the ninth month after their issuance and at a floating rate equal to Badlar plus 4.25% from the 10th month of their issuance through their maturity date. The Class VII notes pay interest on a quarterly basis. The aggregate principal amount of such notes will be repaid upon maturity. On July 31, 2015 Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class V Series I notes.
In April 2016, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VI Series I notes.
On January 31, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class V, Series II notes.
On July 27, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VII notes.
On October 23, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VI Series II notes.
Currently, Grupo Financiero Galicia does not have any outstanding debt under its notes program that was put into place in 2009.
Banco Galicia has a program in place for the issuance and re-issuance of non-convertible notes, subordinated or non-subordinated, floating or fixed-rate, secured or unsecured, with a term from 30 days to up to 30 years, for a maximum outstanding principal amount of up to US$483.25 million. This program was originally approved by the CNV on November 4, 2005 and was mostly recently extended on January 26, 2017 by the CNV until January 26, 2022. Pursuant to Resolution No.18,480, the CNV also approved an increase of the maximum outstanding principal amount under the program to US$1,100 million. Pursuant to Resolution No.19,520, dated May 17, 2018, the CNV approved an increase of the maximum outstanding principal amount under the program to US$2,100 million and the modification of the terms and conditions of the same.
Banco Galicia, also has a program for frequent issuance of notes, approved by the CNV on November 13th, 2019; and registered under the number 11th for a maximum outstanding principal amount of US$ 2,100 million.
During the 2016 fiscal year, Banco Galicia issued certain subordinated Class II notes due 2026 for a nominal value of US$250 million. The proceeds of this issuance were used to redeem the Bank’s outstanding subordinated notes due 2019.
On May 18, 2017, Banco Galicia issued Class IV notes in an aggregate principal amount of Ps.2,000 million due 2020.
During the 2018 fiscal year, Banco Galicia issued Series I Class V notes in an aggregate principal amount of Ps.4,209 million due 2020 and Series II Class V notes in an aggregate principal amount of Ps.2,032 million due 2021.
On November 25, 2019, Banco Galicia issued Class VII notes in an aggregate principal amount of Ps.4,182 million due 2020.
Tarjeta Naranja has a Global Short-Term, Medium-Term and Long-Term Note Program for the issuance of up to US$1,000 million (or the equivalent amount in other currencies) that was approved by the CNV on May 10, 2018. Such notes may be unsecured or secured, denominated in Pesos, Dollars or, at Tarjeta Naranja’s option, in other currencies, with maturities of not less than 30 days after their issuance date. Also, they may be offered in separate classes and/or series and may be re issued, as applicable, in the amounts, at the prices and under the conditions to be established and specified in the applicable pricing supplement.
The program contains certain restrictions on liens, subject to the provisions established in the applicable pricing supplement with respect to each class and/or series of notes, so long as any note issued under such program remains outstanding.
Certain notes issued under Tarjeta Naranja’s program are subject to covenants that limit the ability of Naranja and their subsidiaries, subject to important qualifications and exceptions, to declare or pay any dividend or make any distribution in respect of its capital stock; redeem, repurchase or retire its capital stock; make certain restricted payments; consolidate, merge or transfer assets; and incur any indebtedness, among others.
As a result of the merger with Tarjetas Cuyanas, as of October 1, 2017, Tarjeta Naranja incorporated into its assets Tarjetas Cuyanas’ outstanding debt. Beginning on October 1, 2017, Tarjeta Naranja made principal and interest payments in respect of such debt.
As of December 31, 2019, Tarjeta Naranja’s total debt issued under both programs was equal to an outstanding principal amount outstanding of Ps.9,601 million (approximately US$160.3 million).
Contractual Obligations
The table below identifies the total amounts (principal and interest) of our main on balance-sheet contractual obligations, their currency of denomination, remaining maturity and interest rate and the breakdown of payments due as of December 31, 2019.
|
| December 31, 2019 |
| |||||||||||||||||||||||
|
| Maturity |
| Annual Interest Rate |
|
| Total |
|
| Less than 1 Year |
|
| 1 to 3 Years |
|
| 3 to 5 Years |
|
| Over 5 Years |
| ||||||
Banco Galicia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits (Ps./US$) |
| Various |
| Various |
|
|
| 141,083 |
|
|
| 141,030 |
|
| 48 |
|
| 5 |
|
|
| — |
| |||
Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Class III Due 2020 (Ps.) (1) |
| 2020 |
| Badlar + 269 bp |
|
|
| 1,008 |
|
|
| 1,008 |
|
|
| 0 |
|
|
| — |
|
|
| — |
| |
Notes Class IV Due 2020 (Ps.) (2) |
| 2020 |
| Badlar + 298 bp |
|
|
| 1,640 |
|
|
| 1,640 |
|
|
| 0 |
|
|
| — |
|
|
| — |
| |
Notes Class V Serie II Due 2020 (Ps.) (3) |
| 2020 |
| 26.00% |
|
|
| 2,692 |
|
|
| 2,692 |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Notes Class V Serie II Due 2020 (Ps.) (4) |
| 2021 |
| Badlar + 350 bp |
|
|
| 1,656 |
|
|
| — |
|
|
| 1,656 |
|
|
| — |
|
|
| — |
| |
Notes Class VII Due 2020 (Ps.) (5) |
| 2020 |
| Badlar + 400 bp |
|
|
| 4,085 |
|
|
| 4,085 |
|
|
| 0 |
|
|
| — |
|
|
| — |
| |
Green Bond - IFC (U.$. S) |
| 2025 |
| 5.90% |
|
|
| 5,954 |
|
|
| — |
|
|
| 2,646 |
|
|
| 2,646 |
|
|
| 662 |
| |
2026 Subordinated Notes (US$) (5) |
| 2026 |
| 8.30% |
|
|
| 14,974 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,974 |
| |
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFC Financial Loans (US$) |
| Varios |
| Varios |
|
|
| 5,562 |
|
|
| 2,111 |
|
|
| 2,852 |
|
| 599 |
|
| 0 |
| |||
Other Financial Loans (US$) (6) |
| Varios |
| Varios |
|
|
| 10,668 |
|
|
| 10,668 |
|
|
| — |
|
|
| — |
|
|
| — |
| |
IDB Financial Loans (US$) |
| Varios |
| Varios |
|
|
| 500 |
|
|
| 500 |
|
| 0 |
|
|
| — |
|
|
| — |
| ||
IDB Financial Loans (Ps.) |
| Varios |
| Varios |
|
| 141 |
|
| 45 |
|
| 70 |
|
| 26 |
|
| 0 |
| ||||||
Linea Fontar |
| Varios |
| Varios |
|
| 1 |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||
BICE Financial Loans (Ps.) |
| Varios |
| Varios |
|
|
| 1,897 |
|
| 774 |
|
|
| 975 |
|
|
| 148 |
|
|
| — |
| ||
BICE Financial Loans (US$) |
| Varios |
| Varios |
|
| 879 |
|
| 79 |
|
| 472 |
|
| 328 |
|
|
| — |
| |||||
Short-term Interbank Loans (Ps.) |
| 2020 |
| 41.60% |
|
| 501 |
|
| 501 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||
Corresponsales |
| 2020 |
| 0.00% |
|
|
| 374 |
|
|
| 374 |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Argentine Central Bank |
| 2020 |
| 0.00% |
|
| 22 |
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||
Argentine Central Bank |
| 2020 |
| 0.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repos (Ps.) |
| 2020 |
| 50.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repos (US$) |
| 2020 |
| 4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Tarjetas Regionales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Loans with Local Banks (Ps.) |
| Various |
| Various |
|
|
| 2,011 |
|
|
| 2,011 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Notes (Ps.) |
| Various |
| Various |
|
|
| 9,415 |
|
|
| 6,519 |
|
|
| 2,896 |
|
|
|
|
|
|
|
|
| |
Total |
|
|
|
|
|
|
|
| 205,063 |
|
|
| 174,060 |
|
|
| 11,615 |
|
|
| 3,752 |
|
|
| 15,636 |
|
Principal and interest. Includes the UVA adjustment, where applicable.
(1) Interest payable quarterly in cash, adjustable rate of Badlar + 269 bps Principal payable in full on February 17, 2020.
(2) Interest payable in cash quarterly in cash, adjustable rate of Badlar + 298 bps Principal payable in full on May 18, 2020.
(3) Interest payable in cash and principal payable in full on April 26, 2020.
(4) Interest payable in cash quarterly in cash, adjustable rate of Badlar + 350 bps Principal payable in full on April 26, 2021.
(5) Interest payable in cash semi-annually, fixed rate of 8.25%, up to July 19, 2021, when benchmark rate will be a 7.156% additional. Principal payable in full on July 19, 2026.
(6) Borrowings to finance international trade operations to Bank customers.
Leases
The following tables provides information for leases where Grupo Financiero Galicia is the lessee:
December 31, 2019 | ||||
(In millions of Pesos) | ||||
Amounts recognized in the Statement of Financial Position: | ||||
Right-of-use asset (1) | 3,681 | |||
Lease Liabilities (2) | 3,768 | |||
(1) Recorded in the Property, Plant and Equipment item, for right of use of real property.
(2) Recorded in the item Other Financial Liabilities.
December 31, 2019 | ||||
(In millions of Pesos) | ||||
Amounts recognized in the Statement of Income: | ||||
Charge for depreciation of right-of-use assets (1)(2) | 965 | |||
Interest Expenses (3) | 375 | |||
Expenses related to short-term leases (4) | 24 | |||
Expenses related to low-value assets leases (4) | 75 | |||
Sublease Income (5) | 2 | |||
(1) Depreciation for right of use of Real Property.
(2) Recorded in the item Depreciation and Impairment of assets.
(3) Recorded in the item Other Operating Expenses, Lease Interest.
(4) Recorded in the item Administrative Expenses.
(5) Recorded in the item Other Operating Income.
Off-Balance Sheet Arrangements
Our off-balance sheet risks mainly arise from Banco Galicia’s activities. In the normal course of its business and in order to meet customer financing needs, Grupo Galicia is a party to financial instruments with off-balance sheet risk. These instruments expose us to credit risk in addition to loans recognized on our consolidated balance sheets. These financial instruments include commitments to extend credit, standby letters of credit and guarantees.
The same internal regulations and policies apply for commitments to extend credit, standby letters of credit and guarantees. Outstanding commitments and guarantees do not represent an unusually high credit risk for Grupo Galicia.
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer at a future date, subject to meeting certain contractual terms. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent actual future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis.
Guarantees
Guarantees are agreements and/or commitments to reimburse or make payment on account of any losses or non-payments by a borrower in an event of default scenario and include surety guarantees in connection with transactions between two parties.
Stand-By Letters of Credit and Foreign Trade Transactions
Standby letters of credit and guarantees granted are conditional commitments issued by Banco Galicia to guarantee the performance of a customer to a third party. Banco Galicia also provides conditional commitments for foreign trade transactions.
Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, guarantees granted and acceptances is represented by the contractual notional amount of those investments.
Our credit exposure related to these items as of December 31, 2019 is set forth below:
December 31, 2019 | ||||
(in millions of Pesos) | ||||
Agreed Commitments | 19,952 | |||
Export and Import Documentary Credits | 2,596 | |||
Guarantees Granted | 16,133 | |||
Responsibilities for Foreign Trade Transactions | 1,702 | |||
The credit risk of these instruments is similar as the credit risk associated with credit facilities provided to individuals and companies. To provide guarantees to our customers, we may require counter-guarantees, which are classified as follows:
December 31, 2019 | ||||
(in millions of Pesos) | ||||
Other Preferred Guarantees Received | 930 | |||
Other Guarantees Received | 524 | |||
In addition, checks to be debited and credited, notes, invoices and miscellaneous items subject to collection are recorded in memorandum accounts until such instruments are approved or accepted.
The risk of loss in these offsetting transactions is not significant.
December 31, 2019 | ||||
(in millions of Pesos) | ||||
Checks and Drafts to be Debited | 5,370 | |||
Checks and Drafts to be Credited | 6,756 | |||
Values for Collection | 38,508 | |||
Grupo Galicia acts as trustee pursuant to trust agreements to secure obligations in connection with financing transaction undertaken by its customers. The amount of funds and securities held in trust as of December 31, 2019 is as follows:
December 31, 2019 | ||||
(in millions of Pesos) | ||||
Trust Funds | 6,964 | |||
Securities Held in Custody | 465,283 | |||
These funds and securities are not included in Grupo Galicia’s consolidated financial statements as it does not have control over the same. For additional information regarding off-balance sheet financial instruments, see Note 48 to our audited consolidated financial statements.
Principal Trends
Related to Argentina
Argentina's financial program still depends on the outcome of the ongoing debt restructuring process. Access to debt market has not recovered yet, and the possibility of recovering it will depend on the offer made by the Government, the consistency of the macroeconomic plan and the international context and the consequences that the recent outbreak of the COVID-19 pandemic has on it.
As regards the foreign exchange market, current controls allowed the Peso to depreciate less than other currencies in the region in this context. As external pressures continue, it would be expected that the Argentine Central Bank would allow a faster depreciation so as not to overvalue the peso in real terms.
With respect to the monetary policy, 2019 was mostly characterized by a great interest rate increase for the purpose of containing the devaluation of the Argentine peso. Nevertheless, the monetary policy became more relaxed by the end of the year. This is likely to continue in 2020, with interest rate cuts and issuances in Argentine pesos.
In the fiscal front, towards the end of 2019 and due to the ongoing COVID-19 pandemic, the Argentine Congress passed a law that created new taxes, stopped certain tax reductions that were meant to occur during 2020 and increased other taxes. These changes were made in order to allow the government to increase public spending, financed by an increase in tax collections. Added to this, the government announced a tax package consisting of social transfers, increases in pensions and cuts in employers´ contributions—among others—in order to face the economic and health consequences of the pandemic. All in all, 2020 should be a year of lax fiscal policy that will be mainly financed by monetary issuance, in the absence of access to debt markets.
.
Related to the Financial System
The Argentine financial system will continue to interact with the private sector, which is expected to maintain its current capital structure, characterized by a focus on short term credit and high liquidity assets. We do not expect credit to grow in terms of GDP during 2020.
Portfolio quality indicators are expected to be influenced by macroeconomic factors, and social-distancing measures taken to stem the COVID-19 pandemic are affecting several economic activities, increasing the risk to cut the chain of payments. The Argentine Central Bank relaxed delinquency days and default terms for the benefit of borrowers. We believe these measures could have an impact on the profit levels of financial institutions. Simultaneously, the Argentina Central Bank is promoting financing alternatives at lower interest rates, mainly for SMEs. This situation could have negative consequences on the financial income of banks, which will depend, among other important aspects, on the evolution of the pandemic.
In terms of the solvency of the Argentine financial system, it is expected that the net results of the banks in 2020 will enable the system overall to exceed the minimum capitalization requirements set forth in the Basel Committee regulations. Income from holdings, in particular those associated with returns on liquidity, is expected to reduce its contribution to the operating income in 2020 and this effect would be compensated by interest on loans. At the same time, those banks will continue to improve their operating efficiency.
A solid systemic position of the Argentine financial system is expected to prevail in 2020. In addition, the level of hedging arrangements and excess capital will be a source of strength to the extent loan portfolios in default continue to increase. Low leverage levels as compared to companies and individuals in the region demonstrate the potential for Argentine financial institutions to remain strong despite the inflation and the volatility of the Peso.
Related to Us
The volatile and uncertain context which the Argentine economy is currently going through, marked by the economic and social impacts of the COVID-19 pandemic and all the public policy measures that were taken and will continue to be taken, added to the pre-existing macroeconomic situation and the debt renegotiation, requires a thorough review and monitoring of the macroeconomic scenarios where Grupo Financiero Galicia operates and of the impact analysis on the different business lines as set forth below.
We consider that 2020 will be characterized by a more lenient lax policy, essentially financed through money issuance (on account of the virtual closure of international markets for Argentina). Such an expansionary monetary policy, in the context of a strict foreign exchange control, mainly impacts on the financial system.
To this we must add a more regulated activity in terms of directed credit, as it has already begun to occur with regulations that encourage granting loans to SMEs at maximum rates, through the benefits or exemptions in bank reserve, or limits on placement of excess liquidity in economic policy instruments.
In Banco Galicia, these policies affect the financial margin, namely the brokerage margin and the lower profitability resulting from placing Liquidity Bills (both for volume and rates).
These regulations may also impact the income from the purchase and sale of foreign currency, already known and analyzed since the end of 2019. In addition, regulations aimed at preventing an increase in prices of fees for the entire 2020 and the recent ban to charge fees for the use of ATMs until June 2020, must be considered.
Finally, the decrease of the economic activity and the subsequent increase in unemployment will considerably impact on the quality of portfolios, increasing charges for uncollectible accounts, both in Banco Galicia and Tarjeta Naranja.
As a consequence of the above-mentioned situation, Banco Galicia foresees the following impacts from COVID-19 during 2020:
- Fee income will be reduced, due to lower prices and lower volumes.
- Financial income will be affected by: (i) a lower average lending rate as a consequence of the directed credit at maximum interest rates, and (ii) a demand driven by subsidized credit. This could be partially offset by improving the structure of liabilities, due to the less attractive placement conditions. Additionally, and compared to 2019, the profitability from investing the excess liquidity will decrease, both due to the regulatory limits to the volumes invested and the downward trend in rates.
- Loan and other receivables loss provisions will be significantly accelerated, considering the impact generated by a reduction in the activity and employment levels.
- Administrative expenses will not experience significant changes with respect to our estimate for 2020, considering the containment policy and the digital transformation that the Bank is going through by generating efficient captures.
- As for volumes, the expansionary monetary policy with foreign exchange control imposed by the administration will probably continue generating dynamism in deposits, growing slightly above the system. As regards credit, although we do not believe that there is a very dynamic demand, considering the expected level of economic activity, credit boost policies and the need to rebuild working capital will generate growth in terms of Gross Domestic Product when the economy begins to stabilize.
To conclude, we estimate that the COVID-19 pandemic will have a negative impact on the Bank's income, mainly as a consequence of: (i) the negative impact of the financial income, due to the reasons stated above; (ii) restrictions imposed by regulations to charge fees; (iii) higher loan and other receivables loss provisions; and (iv) the higher nominality of savings in expenses.
Still, it is currently believe, based on the information known to date, that the Bank’s current liquidity and solvency levels will allow it to cope with this situation in the short term, assuming it is under control by the end of 2020.
With regards to Tarjeta Naranja, as it is a credit-and-consumption-related business, the estimated impact will be reflected in a potential drop in the volume of operations or customer transactions; therefore, revenue obtained from services will be affected.
Additionally, the Tarjeta Naranja access to financing through the capital market may be limited, which in turn would leave Tarjeta Naranja with less ability to offer financing plans or loans to its customers, with the consequent impact that would have on financial income. However, Tarjeta Naranja has so far been able to maintain the liquidity and solvency levels that would allow it to address the obligations incurred.
Loan and other receivables loss provisions will increase as a consequence of the general impact the COVID-19 pandemic will have on the economy and expected increase in unemployment rates.
In conclusion, we expect a negative impact on Tarjeta Naranja's future income during 2020, mainly caused by the decrease of financial and service revenues, and higher charges for arrearage.
On the other hand, Sudamericana Holding does not foresee significant consequences on their business during 2020 related to COVID-19 and derived by the new regulations, either in economic or financial terms.
The operational management of the Group Galicia’s subsidiaries is stable, enabling us to comply with the needs and demands of our customers and of the control and supervision bodies. The implementation of work from home policies for our employees and our technological infrastructure have become invaluable tools to remain operative.
Grupo Financiero Galicia will continue with the objective of strengthening its leadership position in the market. The high quality of the products and services it (and its subsidiaries) provide to current and future customers will continue to have a central role, in addition to continuing the process of improving operational efficiency as a key factor in generating value for its customers and shareholders.
Likewise, thequarantine, social distancing and restrictions on face-to-face activities are driving forces to continue promoting and accelerating our Digital Transformation process. We continue working on projects that enrich the experience of our customers and employees. We leverage new business lines like Naranja X, and we remain focused on transforming Banco Galicia into a 100% digital platform, with the purpose of growing and capturing new customers.
The business growth of all the companies that make up Grupo Galicia takes place within the framework of a sustainable management. To this end, we will continue to seek new opportunitiesaimed at the common good and care for the environment.
The Board of Directors is closely monitoring this situation and taking all the required measures within their reach to preserve human life and our operations.
The analysis of these trends should be read in conjunction with the discussion in Item 3. “Key Information”— D. “Risk Factors”, and with consideration that the Argentine economy has been historically volatile, which has negatively affected the volume and growth of the financial system.
B. Liquidity and Capital Resources
Liquidity - Holding Company on an Individual Basis
We generate our net earnings/losses from our operating subsidiaries, specifically Banco Galicia, our main operating subsidiary. Banco Galicia’s dividend-paying ability has been affected since late 2001 by the effects of the 2001-2002 liquidity crisis and its impact on Banco Galicia’s income-generation capacity. In addition, there were other restrictions on Banco Galicia’s ability to pay dividends resulting from applicable Argentine Central Bank rules and the loan agreements entered into by Banco Galicia as part of its foreign debt restructuring. See Item 8. “Financial Information”—"Dividend Policy and Dividends.”
From 2002 to 2010 we did not receive any dividends from Banco Galicia, which is the primary source of funds available to us. On April 27, 2011, during the shareholders’ meeting of Banco Galicia, a distribution of cash dividends for a total amount of Ps.100 million was approved.
During fiscal years 2017 and 2018, Grupo Financiero Galicia received dividends from its subsidiaries in the amount of Ps.658 million, (equivalent to Ps.1,667 million as of December 2019), and Ps.1,152 million, (equivalent to Ps.2,273 million as of December 2019), respectively. During fiscal year 2019, Grupo Financiero Galicia received dividends for Ps.2,392 million, (equivalent to Ps.3,041 million as of December 2019). During March 2020, the shareholders’ meeting of Galicia Warrants S.A. and Galicia Administradora de Fondos S.A. approved the distribution of dividends in cash during April 2020, for Ps.40 million and Ps.316 million respectively.
On April 2019, Grupo Financiero Galicia received a cash dividend from Banco Galicia in the amount of Ps.1,500 million (equivalent to Ps.1,996 million as of December 2019) for fiscal year 2018.
Due to the regulations recently passed by the Argentine Central Bank within the framework of the measures taken by the government to respond to the COVID-19, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020.
The extent to which a banking subsidiary may extend credit or otherwise provide funds to a holding company is limited by Argentine Central Bank rules. For a description of these rules, see Item 4. “Information on the Company-Argentine Banking Regulation-Lending Limits.”
According to Grupo Financiero Galicia’s policy for the distribution of dividends and due to Grupo Financiero Galicia’s financial condition for the fiscal year ended December 31, 2019 and the fact that most of the profits for fiscal years 2017 and 2018 also corresponded to income from holdings (with just a fraction corresponding to the realized and liquid profits meeting the requirements to be distributed as per Section 68 of the Corporations Law) the shareholders' meeting held on April 28, 2020 approved to increase the discretionary reserve for future dividends’ distribution and to grant to the Board of Directors the ability to partially use said reserve to pay cash dividends, in an amount equal to Ps.4,000 million,. This amount represents 280.3546% with regard to 1,426,764,597 class A and B ordinary shares, with a face value of Ps.1 each, and the distribution is subject to Banco Galicia’s capacity to pay cash dividends in at least the same amount.
For fiscal year 2017, the shareholders’ meeting held on April 24, 2018 approved the distribution of cash dividends for Ps.1,200 million, equivalent to Ps.2,487 million as of December 2019 which represented a dividend of 84.11% with respect to 1,426,764,597 class A and B ordinary shares of Grupo Financiero Galicia with a face value of Ps.1 each. Similarly, for fiscal year 2018, the shareholders’ meeting held on April 25, 2019 approved the distribution of cash dividends for Ps.2,000 million, (equivalent to Ps.2,582 million as of December 2019), which represented a dividend of 140.18% with respect to 1,426,764,597 class A and B ordinary shares of Grupo Financiero Galicia with a face value of Ps.1 each.
Due to Act. No. 27,260, Grupo Financiero Galicia neither reimbursed nor withheld any amount for tax purposes on the dividends paid for fiscal year 2017 and 2018. For fiscal year 2019, due to regulations in force, Grupo Financiero Galicia may withhold some amount for tax purposes on the dividends to be distributed.
As of December 31, 2019, Grupo Financiero Galicia, on an individual basis, had cash and amounts due from banks in an amount of Ps.0.3 million, short-term investments made up of special checking account deposits, mutual funds and government securities and foreign currency in an amount of Ps.810 million.
As of December 31, 2018, Grupo Financiero Galicia, on an individual basis, had cash and amounts due from banks in an amount of Ps.0.2 million and short-term investments made up of special checking account deposits, mutual funds and government securities and foreign currency in an amount of Ps.885 million, (equivalent to Ps.1,362 million as of December 2019).
As of December 31, 2017, Grupo Financiero Galicia, on an individual basis, had cash and due from banks in an amount of Ps.0.4 million and short-term investments made up of special checking account deposits, mutual funds and government securities in an amount of Ps.1,663 million, (equivalent to Ps.3,777 million as of December 2019).
During fiscal year 2019, Grupo Financiero Galicia made capital contributions for a total amount of Ps.571 million (equivalent to Ps.644 million as of December 2019), Ps.71 million to IGAM LLC and Ps.500 million to Tarjetas Regionales S.A.
For a description of the notes issued by Grupo Financiero Galicia, see —Item 5.A. “Operating Results” —” Debt Programs”.
Each of our subsidiaries is responsible for their own liquidity management. For a discussion of Banco Galicia’s liquidity management, see “Banco Galicia’s Liquidity Management-Banco Galicia Liquidity Management”.
Consolidated Cash Flows
Our consolidated statements of cash flows were prepared in accordance with IAS 7 (Statements of Cash Flows). See our consolidated cash flow statements as of and for the fiscal years ended December 31, 2019, December 31, 2018 and December 31, 2017 included in this annual report.
As of December 31, 2019, on a consolidated basis, we had Ps.232,119 million in available cash (defined as total cash and cash equivalents), representing a Ps.115,340 million decrease as compared to the Ps.347,459 million in available cash as of December 31, 2018.
As of December 31, 2018, on a consolidated basis, we had Ps.347,459 million in available cash, representing a Ps.144,465 million increase as compared to the Ps.202,994 million in available cash as of December 31, 2017.
Cash equivalents are comprised of the following: Argentine Central Bank debt instruments having a remaining maturity that does not exceed 90 days, securities in connection with reverse repurchase agreement transactions with the Argentine Central Bank, local interbank loans and overnight placements in correspondent banks abroad. Cash equivalents also comprise, in the case of Tarjetas Regionales, time deposit certificates and mutual fund shares.
The table below summarizes the information from our consolidated statements of cash flows for the fiscal years ended December 31, 2019, 2018 and 2017.
|
| December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
|
|
|
|
| |||||
Net Cash (used in)/generated by Operating Activities |
|
| (10,569 | ) |
|
| 121,928 |
|
|
| (13,810 | ) |
Net Cash (used in)/generated by Investment Activities |
|
| (5,218 | ) |
|
| (5,517 | ) |
|
| (5,955 | ) |
Net Cash (used in)/generated by Financing Activities |
|
| (27,130 | ) |
|
| 28,395 |
|
|
| 20,605 |
|
Exchange income/(losses) on Cash and Cash Equivalents |
|
| 51,076 |
|
|
| 69,162 |
|
|
| 10,970 |
|
Net increase in cash and cash equivalents |
|
| 8,159 |
|
|
| 213,968 |
|
|
| 11,810 |
|
Monetary loss related to cash and cash equivalents |
|
| (123,499 | ) |
|
| (69,503 | ) |
|
| (29,778 | ) |
Cash and cash equivalents at the beginning of the year |
|
| 347,459 |
|
|
| 202,994 |
|
|
| 220,962 |
|
Cash and cash equivalents at end of the year |
|
| 232,119 |
|
|
| 347,459 |
|
|
| 202,994 |
|
Our operating activities include the operating results, the origination of loans and other financing transactions with the private sector, as well as raising customer deposits and entering into sales of government securities under repurchase agreement transactions. Our investing activities primarily consist of the acquisition of equity investments and purchasing of bank premises and equipment. Our financing activities include issuing bonds in the local and foreign capital markets and borrowing from foreign and local banks and international credit agencies.
Management believes that cash flows from operations and available cash and cash equivalent balances, will be sufficient to fund our financial commitments and capital expenditures for fiscal year 2020.
Cash Flows from Operating Activities
|
| December 31, |
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Cash Flows from Operating Activities |
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Income before Taxes from continuing operations |
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| 36,858 |
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| 5,191 |
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| 22,950 |
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Adjustment to Obtain the Operating Activities Flows: |
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Loan and other Receivables Loss Provisions |
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| 22,203 |
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| 25,074 |
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| 11,220 |
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Consolidated Assets The main components of our consolidated assets as of the dates indicated below were as follows:
Of our Ps.685,409 million total assets as of December 31, 2019, Ps.616,356 million, or 90%, corresponded to Banco Galicia and Ps.66,117 million, or 9,6% corresponded to Tarjetas Regionales on a consolidated basis. The remaining was primarily attributable to Sudamericana on a consolidated basis. The composition of our assets demonstrates a decrease in the amounts of main line items. The item “Cash and Due from Banks” included cash for Ps.130,649 million, balances held at the Argentine Central Bank for Ps.75,542 million and balances held in correspondent banks for Ps.2,379 million. The balance held at the Argentine Central Bank is used for meeting the minimum cash requirements set by the Argentine Central Bank. Our holdings of debt securities as of December 31, 2019 was Ps.65,690 million. Our holdings of government and private securities are shown in more detail in Item 4. “Information on the Company”—B. “Operating Overview”─ “Selected Statistical Information”— “Debt and Equity Securities”. Our total net loans and other financing were Ps.358,559 million as of December 31, 2019, of which Ps.309,329 million corresponded to Banco Galicia’ portfolio and Ps.48,427 corresponded to Tarjetas Regionales’ portfolios, the remaining amount to secured loans held by Sudamericana. For more information on loan and other financing activities portfolios, see Item 4. “Information on the Company”—B. “Operating Overview”─ “Selected Statistical Information”— “Loan and Other Financing Portfolio”. Exposure to the Argentine Public Sector The following table shows our total net exposure, primarily related to Banco Galicia, to the Argentine public sector as of December 31, 2019 and 2018 and 2017.
(1) Does not include deposits with the Argentine Central Bank, which constitute one of the items by which Banco Galicia complies with the Argentine Central Bank’s minimum cash requirements. As of December 31, 2019, the exposure to the public sector amounted to Ps.113,464 million, a decrease of 15% as compared to Ps.133,893 million for the year ended December 31, 2018. Excluding the debt securities issued by the Argentine Central Bank, the Bank’s exposure amounted to Ps.55,323 million equal to 8% of total assets. Funding Banco Galicia’s and Tarjetas Regionales’ lending activities are our main asset-generating businesses. Accordingly, most of our borrowing and liquidity needs are associated with these activities. We also have liquidity needs at the level of our holding company, which are discussed in Item 5. “Operating and Financial Review and Prospects”—B. “Liquidity and Capital Resources”—“Liquidity-Holding Company on an Individual Basis”. Our objective is to maintain cost-effective and well diversified funding to support current and future asset growth in our businesses. For this, we rely on diverse sources of funding. The use and availability of funding sources depends on market conditions, both local and foreign, and prevailing interest rates. Market conditions in Argentina include a structurally limited availability of domestic long-term funding. Our funding activities and liquidity planning are integrated into our asset and liability management and our financial risks management and policies. The liquidity policy of Grupo Financiero Galicia is described in Item 5. “Operating and Financial Review and Prospects”—B. “Liquidity and Capital Resources”—“Liquidity Management” and our other financial risk policies, including interest rate, currency and market risks are described in Item 11. “Quantitative and Qualitative Disclosures about Market Risk”. Our funding sources are discussed below. Traditionally, our primary source of funding has been Banco Galicia’s deposit taking activity. Although Banco Galicia has access to Argentine Central Bank financing, management does not view this as a primary source of funding in line with our overall strategies discussed herein. Other important sources of funding have traditionally included issuing foreign currency-denominated medium and long-term debt securities issued in foreign capital markets and borrowing from international banks and multilateral credit agencies. Banco Galicia entered into a master loan agreement with the IFC in 2016, for US$130 million, divided into two parts, one of them with the purpose of funding long-term loans to SMEs and the other part with the purpose of funding renewable energy project and efficiency energy power project. Additionally, Banco Galicia entered into master bond agreements with the IFC for US$100 million in order to expand its loan program for environmental efficiency projects. Selling government securities under repurchase agreement transactions has been a recurrent source of funding for Banco Galicia. Although not presently a key source of funding, repurchase agreement transactions are part of the liquidity policy of the Bank. Within its liquidity policy, Banco Galicia considers its unencumbered liquid government securities holdings as part of its available excess liquidity. See Item 5. “Operating and Financial Review and Prospects” —B. “Liquidity and Capital Resources”—“Liquidity Management”. Tarjetas Regionales fund their business through the issuance of notes in the local and international capital markets, borrowing from local financial institutions and debt with merchants generated in the ordinary course of business of any credit card issuing company. In 2019, Tarjetas Regionales issued notes in an amount equal to Ps.1,584 million (approximately US$40.3 million). Below is a breakdown of our funding as of the dates indicated:
(1) Each item includes principal, interest accrued, exchange rate differences and premiums payable, as well as UVA adjustment, where applicable. (2) It includes debts with stores due to credit card transactions, collections on account of third parties in Pesos and foreign currency, miscellaneous obligations and allowances, among others. The main sources of funds are deposits from the private sector, lines of credit extended by local banks and entities, international banks and multilateral credit agencies, repurchase transactions mainly related to government securities, mid- and long-term debt securities placed in the local and international capital market and debts with stores due to credit card transactions. As of December 31, 2019, deposits represented 57% of our funding, down from 63% as of December 31, 2018. Our deposit base decreased 29% in 2019 as compared to 2018. During fiscal year 2019, the Ps.160,211 million decrease in deposits was due to a decrease in transactional deposits (deposits in savings accounts and time deposits, with decreases of 42% and 19%, respectively). For more information on deposits, see Item 4. “Information on the Company”—B. “Business Overview” — “Selected Statistical Information”—“Deposits”. As of December 31, 2019, credit lines from international banks and credit agencies amounted to Ps.16,729 million. Of this total, Ps.9,970 million corresponded to prefinancing and foreign trade transactions; Ps.6,259 million corresponded to amounts received from the IFC pursuant to a loan agreement and Ps.500 million corresponded to amounts received from the IDB pursuant to a loan agreement. Our debt securities outstanding (only principal) were Ps.44,740 million as of December 31, 2019, as compared to Ps.61,151 million as of December 31, 2018. Of the total debt securities outstanding as of December 31, 2019, Ps.23,071 million corresponded to Peso-denominated debt, of which Ps.12,733 million corresponded to debt securities issued by Banco Galicia and Ps.10,338 million corresponded to debt securities issued by Tarjeta Naranja (which includes debt securities issued by Tarjetas Cuyanas). The remaining Ps.21,669 million of outstanding debt securities corresponded to foreign currency-denominated debt in respect of subordinated debt securities due in 2026 issued by Banco Galicia and the green bond with the IFC. As of December 31, 2019, the breakdown of our debt was as follows:
(*) Includes principal and interest. (**) Debt securities absorbed as part of the merger with Tarjeta Naranja S.A. (1) As specified in the terms and conditions of the issuance, they were converted to Ps.2,360,360 Investor assumes the exchange rate risk since the service of interest and principal is calculated based on the principal amount in Pesos converted into US Dollars on each payment date. (2) The net proceeds from this issuance of negotiable obligations was applied to investments in working capital, loans, other loans and other uses envisaged by the provisions of the Law on Negotiable Obligations and the Argentine Central Bank regulations. (3) Variable rate equal to the simple arithmetic average of private Badlar, plus 2.69%, which will be payable quarterly as from May 17, 2017 onwards. (4) Variable rate equal to the simple arithmetic average of private Badlar, plus 2.98%, which will be payable quarterly as from August 18, 2017 onwards. (5) Annual nominal fixed 25.98% rate; principal and interest will be settled in full upon maturity. (6) Variable rate equal to the simple arithmetic average of private Badlar, plus 3.5%, which will be payable quarterly as from July 26, 2018 onwards. Principal in respect of this Series will be repaid upon maturity. (7) Variable rate equivalent to simple arithmetical average of private Badlar rates plus 4%, to be paid on February 25, 2020 and May 25, 2020. For more information see “—Contractual Obligations” below. Ratings The following are our ratings as of the date of this annual report:
(*) See “—Contractual Obligations”. Debt Programs On March 9, 2009, Grupo Financiero Galicia’s shareholders, during an ordinary shareholders’ meeting, and the Board of Directors created a global short‑, medium‑ and long‑term notes program, for a maximum outstanding amount of US$60 million. This program was authorized by the CNV pursuant to Resolution No.16,113 of April 29, 2009. In August 2012, during an extraordinary shareholders’ meeting, it was decided to ratify the decision made at the ordinary and extraordinary shareholders’ meeting held in April 2010 with regard to the approval of the US$40 million increase in the amount of Grupo Financiero Galicia’s global notes program. Therefore, once approved by the CNV, the amount was for up to US$100 million or its equivalent in other currencies. On May 8, 2014, the CNV, pursuant to Resolution No.17,343, granted an extension of the debt program for another five-year period. On January 30, 2014, Grupo Financiero Galicia issued its Class V notes, in two series, in an aggregate principal amount of Ps.180 million with the following terms and conditions: (i) Ps.102 million of Series I notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 4.25%, with an 18 month maturity and (ii) Ps.78 million of Series II notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 5.25%, with a 36 month maturity. Both series pay interest on a quarterly basis. In addition, certain of the Class V notes were subscribed for with Class III notes for a face value of Ps.20,622,455. In October 2014, Grupo Financiero Galicia issued its Class VI notes, in two series, in an aggregate principal amount of Ps.250.0 million with the following terms and conditions: (i) Ps.140.2 million of Series I notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 3.25%, with an 18 month maturity and (ii) Ps.109.8 million of Series II notes, with a variable interest rate equal to the benchmark rate (Badlar) plus 4.25%, with a 36 month maturity. Both series pay interest on a quarterly basis. In addition, certain of the Class VI notes were subscribed with Class IV notes for a face value of Ps.30,997,382. In July 2015, Grupo Financiero Galicia issued its Class VII notes for an aggregate principal amount of Ps.160 million. Such notes mature on the date that is 24 months after the date of their issuance and accrue interest at a fixed rate equal to 27% from the date of their issuance through the ninth month after their issuance and at a floating rate equal to Badlar plus 4.25% from the 10th month of their issuance through their maturity date. The Class VII notes pay interest on a quarterly basis. The aggregate principal amount of such notes will be repaid upon maturity. On July 31, 2015 Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class V Series I notes. In April 2016, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VI Series I notes. On January 31, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class V, Series II notes. On July 27, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VII notes. On October 23, 2017, Grupo Financiero Galicia cancelled, upon maturity, all of its outstanding Class VI Series II notes. Currently, Grupo Financiero Galicia does not have any outstanding debt under its notes program that was put into place in 2009. Banco Galicia has a program in place for the issuance and re-issuance of non-convertible notes, subordinated or non-subordinated, floating or fixed-rate, secured or unsecured, with a term from 30 days to up to 30 years, for a maximum outstanding principal amount of up to US$483.25 million. This program was originally approved by the CNV on November 4, 2005 and was mostly recently extended on January 26, 2017 by the CNV until January 26, 2022. Pursuant to Resolution No.18,480, the CNV also approved an increase of the maximum outstanding principal amount under the program to US$1,100 million. Pursuant to Resolution No.19,520, dated May 17, 2018, the CNV approved an increase of the maximum outstanding principal amount under the program to US$2,100 million and the modification of the terms and conditions of the same. Banco Galicia, also has a program for frequent issuance of notes, approved by the CNV on November 13th, 2019; and registered under the number 11th for a maximum outstanding principal amount of US$ 2,100 million. During the 2016 fiscal year, Banco Galicia issued certain subordinated Class II notes due 2026 for a nominal value of US$250 million. The proceeds of this issuance were used to redeem the Bank’s outstanding subordinated notes due 2019. On May 18, 2017, Banco Galicia issued Class IV notes in an aggregate principal amount of Ps.2,000 million due 2020. During the 2018 fiscal year, Banco Galicia issued Series I Class V notes in an aggregate principal amount of Ps.4,209 million due 2020 and Series II Class V notes in an aggregate principal amount of Ps.2,032 million due 2021. On November 25, 2019, Banco Galicia issued Class VII notes in an aggregate principal amount of Ps.4,182 million due 2020. Tarjeta Naranja has a Global Short-Term, Medium-Term and Long-Term Note Program for the issuance of up to US$1,000 million (or the equivalent amount in other currencies) that was approved by the CNV on May 10, 2018. Such notes may be unsecured or secured, denominated in Pesos, Dollars or, at Tarjeta Naranja’s option, in other currencies, with maturities of not less than 30 days after their issuance date. Also, they may be offered in separate classes and/or series and may be re issued, as applicable, in the amounts, at the prices and under the conditions to be established and specified in the applicable pricing supplement. The program contains certain restrictions on liens, subject to the provisions established in the applicable pricing supplement with respect to each class and/or series of notes, so long as any note issued under such program remains outstanding. Certain notes issued under Tarjeta Naranja’s program are subject to covenants that limit the ability of Naranja and their subsidiaries, subject to important qualifications and exceptions, to declare or pay any dividend or make any distribution in respect of its capital stock; redeem, repurchase or retire its capital stock; make certain restricted payments; consolidate, merge or transfer assets; and incur any indebtedness, among others. As a result of the merger with Tarjetas Cuyanas, as of October 1, 2017, Tarjeta Naranja incorporated into its assets Tarjetas Cuyanas’ outstanding debt. Beginning on October 1, 2017, Tarjeta Naranja made principal and interest payments in respect of such debt. As of December 31, 2019, Tarjeta Naranja’s total debt issued under both programs was equal to an outstanding principal amount outstanding of Ps.9,601 million (approximately US$160.3 million). Contractual Obligations The table below identifies the total amounts (principal and interest) of our main on balance-sheet contractual obligations, their currency of denomination, remaining maturity and interest rate and the breakdown of payments due as of December 31, 2019.
Principal and interest. Includes the UVA adjustment, where applicable. (1) Interest payable quarterly in cash, adjustable rate of Badlar + 269 bps Principal payable in full on February 17, 2020. (2) Interest payable in cash quarterly in cash, adjustable rate of Badlar + 298 bps Principal payable in full on May 18, 2020. (3) Interest payable in cash and principal payable in full on April 26, 2020. (4) Interest payable in cash quarterly in cash, adjustable rate of Badlar + 350 bps Principal payable in full on April 26, 2021. (5) Interest payable in cash semi-annually, fixed rate of 8.25%, up to July 19, 2021, when benchmark rate will be a 7.156% additional. Principal payable in full on July 19, 2026. (6) Borrowings to finance international trade operations to Bank customers. Leases The following tables provides information for leases where Grupo Financiero Galicia is the lessee:
(1) Recorded in the Property, Plant and Equipment item, for right of use of real property. (2) Recorded in the item Other Financial Liabilities.
(1) Depreciation for right of use of Real Property. (2) Recorded in the item Depreciation and Impairment of
(4) Recorded in the item Administrative Expenses. (5) Recorded in the item Other Operating Income. Off-Balance Sheet Arrangements Our off-balance sheet risks mainly arise from Banco Galicia’s activities. In the normal course of its business and The same internal regulations and policies apply for commitments to extend credit, standby letters of credit and guarantees. Outstanding commitments and guarantees do not represent an unusually high credit risk for Grupo Galicia. Commitments to Extend Credit Commitments to extend credit are agreements to lend to a customer at a future date, subject to meeting certain contractual terms. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent actual future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. Guarantees Guarantees are agreements and/or commitments to reimburse or make payment on account of any losses or non-payments by a borrower in an event of default scenario and include surety guarantees in connection with transactions between two parties. Stand-By Letters of Credit and Foreign Trade Transactions Standby letters of credit and guarantees granted are conditional commitments issued by Banco Galicia to guarantee the performance of a customer to a third party. Banco Galicia also provides conditional commitments for foreign trade transactions. Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, guarantees granted and acceptances is represented by the contractual notional amount of those investments. Our credit exposure related to these items as of December 31, 2019 is set forth below:
The credit risk of these instruments is similar as the credit risk associated with credit facilities provided to individuals and companies. To provide guarantees to our customers, we may require counter-guarantees, which are classified as follows:
In addition, checks to be debited and credited, notes, invoices and miscellaneous items subject to collection are recorded in memorandum accounts until such instruments are approved or accepted. The risk of loss in these offsetting transactions is not significant.
Grupo Galicia acts as trustee pursuant to trust agreements to secure obligations in connection with financing transaction undertaken by its customers. The amount of funds and securities held in trust as of December 31, 2019 is as follows:
These funds and securities are not included in Grupo Galicia’s consolidated financial statements as it does not have control over the same. For additional information regarding off-balance sheet financial instruments, see Note 48 to our audited consolidated financial statements. Principal Trends Related to Argentina Argentina's financial program still depends on the outcome of the ongoing debt restructuring process. Access to debt market has not recovered yet, and the possibility of recovering it will depend on the offer made by the Government, the consistency of the macroeconomic plan and the international context and the consequences that the recent outbreak of the COVID-19 pandemic has on it. As regards the foreign exchange market, current controls allowed the Peso to depreciate less than other currencies in the region in this context. As external pressures continue, it would be expected that the Argentine Central Bank would allow a faster depreciation so as not to overvalue the peso in real terms. With respect to the monetary policy, 2019 was mostly characterized by a great interest rate increase for the purpose of containing the devaluation of the Argentine peso. Nevertheless, the monetary policy became more relaxed by the end of the year. This is likely to continue in 2020, with interest rate cuts and issuances in Argentine pesos. In the fiscal front, towards the end of 2019 and due to the ongoing COVID-19 pandemic, the Argentine Congress passed a law that created new taxes, stopped certain tax reductions that were meant to occur during 2020 and increased other taxes. These changes were made in order to allow the government to increase public spending, financed by an increase in tax collections. Added to this, the government announced a tax package consisting of social transfers, increases in pensions and cuts in employers´ contributions—among others—in order to face the economic and health consequences of the pandemic. All in all, 2020 should be a year of lax fiscal policy that will be mainly financed by monetary issuance, in the absence of access to debt markets. . Related to the Financial System The Argentine financial system will continue to interact with the private sector, which is expected to maintain its current capital structure, characterized by a focus on short term credit and high liquidity assets. We do not expect credit to grow in terms of GDP during 2020. Portfolio quality indicators are expected to be influenced by macroeconomic factors, and social-distancing measures taken to stem the COVID-19 pandemic are affecting several economic activities, increasing the risk to cut the chain of payments. The Argentine Central Bank relaxed delinquency days and default terms for the benefit of borrowers. We believe these measures could have an impact on the profit levels of financial institutions. Simultaneously, the Argentina Central Bank is promoting financing alternatives at lower interest rates, mainly for SMEs. This situation could have negative consequences on the financial income of banks, which will depend, among other important aspects, on the evolution of the pandemic. In terms of the solvency of the Argentine financial system, it is expected that the net results of the banks in 2020 will enable the system overall to exceed the minimum capitalization requirements set forth in the Basel Committee regulations. Income from holdings, in particular those associated with returns on liquidity, is expected to reduce its contribution to the operating income in 2020 and this effect would be compensated by interest on loans. At the same time, those banks will continue to improve their operating efficiency. A solid systemic position of the Argentine financial system is expected to prevail in 2020. In addition, the level of hedging arrangements and excess capital will be a source of strength to the extent loan portfolios in default continue to increase. Low leverage levels as compared to companies and individuals in the region demonstrate the potential for Argentine financial institutions to remain strong despite the inflation and the volatility of the Peso. Related to Us The volatile and uncertain context which the Argentine economy is currently going through, marked by the economic and social impacts of the COVID-19 pandemic and all the public policy measures that were taken and will continue to be taken, added to the pre-existing macroeconomic situation and the debt renegotiation, requires a thorough review and monitoring of the macroeconomic scenarios where Grupo Financiero Galicia operates and of the impact analysis on the different business lines as set forth below. We consider that 2020 will be characterized by a more lenient lax policy, essentially financed through money issuance (on account of the virtual closure of international markets for Argentina). Such an expansionary monetary policy, in the context of a strict foreign exchange control, mainly impacts on the financial system. To this we must add a more regulated activity in terms of directed credit, as it has already begun to occur with regulations that encourage granting loans to SMEs at maximum rates, through the benefits or exemptions in bank reserve, or limits on placement of excess liquidity in economic policy instruments. In Banco Galicia, these policies affect the financial margin, namely the brokerage margin and the lower profitability resulting from placing Liquidity Bills (both for volume and rates). These regulations may also impact the income from the purchase and sale of foreign currency, already known and analyzed since the end of 2019. In addition, regulations aimed at preventing an increase in prices of fees for the entire 2020 and the recent ban to charge fees for the use of ATMs until June 2020, must be considered. Finally, the decrease of the economic activity and the subsequent increase in unemployment will considerably impact on the quality of portfolios, increasing charges for uncollectible accounts, both in Banco Galicia and Tarjeta Naranja. As a consequence of the above-mentioned situation, Banco Galicia foresees the following impacts from COVID-19 during 2020:
To conclude, we estimate that the COVID-19 pandemic will have a negative impact on the Bank's income, mainly as a consequence of: (i) the negative impact of the financial income, due to the reasons stated above; (ii) restrictions imposed by regulations to charge fees; (iii) higher loan and other receivables loss provisions; and (iv) the higher nominality of savings in expenses. Still, it is currently believe, based on the information known to date, that the Bank’s current liquidity and solvency levels will allow it to cope with this situation in the short term, assuming it is under control by the end of 2020. With regards to Tarjeta Naranja, as it is a credit-and-consumption-related business, the estimated impact will be reflected in a potential drop in the volume of operations or customer transactions; therefore, revenue obtained from services will be affected. Additionally, the Tarjeta Naranja access to financing through the capital market may be limited, which in turn would leave Tarjeta Naranja with less ability to offer financing plans or loans to its customers, with the consequent impact that would have on financial income. However, Tarjeta Naranja has so far been able to maintain the liquidity and solvency levels that would allow it to address the obligations incurred. Loan and other receivables loss provisions will increase as a consequence of the general impact the COVID-19 pandemic will have on the economy and expected increase in unemployment rates. In conclusion, we expect a negative impact on Tarjeta Naranja's future income during 2020, mainly caused by the decrease of financial and service revenues, and higher charges for arrearage. On the other hand, Sudamericana Holding does not foresee significant consequences on their business during 2020 related to COVID-19 and derived by the new regulations, either in economic or financial terms. The operational management of the Group Galicia’s subsidiaries is stable, enabling us to comply with the needs and demands of our customers and of the control and supervision bodies. The implementation of work from home policies for our employees and our technological infrastructure have become invaluable tools to remain operative. Grupo Financiero Galicia will continue with the objective of strengthening its leadership position in the market. The high quality of the products and services it (and its subsidiaries) provide to current and future customers will continue to have a central role, in addition to continuing the process of improving operational efficiency as a key factor in generating value for its customers and shareholders. Likewise, thequarantine, social distancing and restrictions on face-to-face activities are driving forces to continue promoting and accelerating our Digital Transformation process. We continue working on projects that enrich the experience of our customers and employees. We leverage new business lines like Naranja X, and we remain focused on transforming Banco Galicia into a 100% digital platform, with the purpose of growing and capturing new customers. The business growth of all the companies that make up Grupo Galicia takes place within the framework of a sustainable management. To this end, we will continue to seek new opportunitiesaimed at the common good and care for the environment. The Board of Directors is closely monitoring this situation and taking all the required measures within their reach to preserve human life and our operations. The analysis of these trends should be read in conjunction with the discussion in Item 3. “Key Information”— D. “Risk Factors”, and with consideration that the Argentine economy has been historically volatile, which has negatively affected the volume and growth of the financial system. B. Liquidity and Capital ResourcesLiquidity - Holding Company on an Individual Basis We generate our net earnings/losses from our operating subsidiaries, specifically Banco Galicia, our main operating subsidiary. Banco Galicia’s dividend-paying ability has been affected since late 2001 by the effects of the 2001-2002 liquidity crisis and its impact on Banco Galicia’s income-generation capacity. In addition, there were other restrictions on Banco Galicia’s ability to pay dividends resulting from applicable Argentine Central Bank rules and the loan agreements entered into by Banco Galicia as part of its foreign debt restructuring. See Item 8. “Financial Information”—"Dividend Policy and Dividends.” From 2002 to 2010 we did not receive any dividends from Banco Galicia, which is the primary source of funds available to us. On April 27, 2011, during the shareholders’ meeting of Banco Galicia, a distribution of cash dividends for a total amount of Ps.100 million was approved. During fiscal years 2017 and 2018, Grupo Financiero Galicia received dividends from its subsidiaries in the amount of Ps.658 million, (equivalent to Ps.1,667 million as of December 2019), and Ps.1,152 million, (equivalent to Ps.2,273 million as of December 2019), respectively. During fiscal year 2019, Grupo Financiero Galicia received dividends for Ps.2,392 million, (equivalent to Ps.3,041 million as of December 2019). During March 2020, the shareholders’ meeting of Galicia Warrants S.A. and Galicia Administradora de Fondos S.A. approved the distribution of dividends in cash during April 2020, for Ps.40 million and Ps.316 million respectively. On April 2019, Grupo Financiero Galicia received a cash dividend from Banco Galicia in the amount of Ps.1,500 million (equivalent to Ps.1,996 million as of December 2019) for fiscal year 2018. Due to the regulations recently passed by the Argentine Central Bank within the framework of the measures taken by the government to respond to the COVID-19, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020. The extent to which a banking subsidiary may extend credit or otherwise provide funds to a holding company is limited by Argentine Central Bank rules. For a description of these rules, see Item 4. “Information on the Company-Argentine Banking Regulation-Lending Limits.” According to Grupo Financiero Galicia’s policy for the distribution of dividends and due to Grupo Financiero Galicia’s financial condition for the fiscal year ended December 31, 2019 and the fact that most of the profits for fiscal years 2017 and 2018 For fiscal year 2017, the shareholders’ meeting held on April 24, 2018 approved the distribution of cash dividends for Ps.1,200 million, equivalent to Ps.2,487 million as of December 2019 which represented a dividend of 84.11% with respect to 1,426,764,597 class A and B ordinary shares of Grupo Financiero Galicia with a face value of Ps.1 each. Similarly, for fiscal year 2018, the shareholders’ meeting held on April 25, 2019 approved the distribution of cash dividends for Ps.2,000 million, (equivalent to Ps.2,582 million as of December 2019), which represented a dividend of 140.18% with respect to 1,426,764,597 class A and B ordinary shares of Grupo Financiero Galicia with a face value of Ps.1 each. Due to Act. No. 27,260, Grupo Financiero Galicia neither reimbursed nor withheld any amount for tax purposes on the dividends paid for fiscal year 2017 and 2018. For fiscal year 2019, due to regulations in force, Grupo Financiero Galicia may withhold some amount for tax purposes on the dividends to be distributed. As of December 31, 2019, Grupo Financiero Galicia, on an individual basis, had cash and amounts due from banks in an amount of Ps.0.3 million, short-term investments made up of special checking account deposits, mutual funds and government securities and foreign currency in an amount of Ps.810 million. As of December 31, 2018, Grupo Financiero Galicia, on an individual basis, had cash and amounts due from banks in an amount of Ps.0.2 million and short-term investments made up of special checking account deposits, mutual funds and government securities and foreign currency in an amount of Ps.885 million, (equivalent to Ps.1,362 million as of December 2019). As of December 31, 2017, Grupo Financiero Galicia, on an individual basis, had cash and due from banks in an amount of Ps.0.4 million and short-term investments made up of special checking account deposits, mutual funds and government securities in an amount of Ps.1,663 million, (equivalent to Ps.3,777 million as of December 2019). During fiscal year 2019, Grupo Financiero Galicia made capital contributions for a total amount of Ps.571 million (equivalent to Ps.644 million as of December 2019), Ps.71 million to IGAM LLC and Ps.500 million to Tarjetas Regionales S.A. For a description of the notes issued by Grupo Financiero Galicia, see —Item 5.A. “Operating Results” —” Debt Programs”. Each of our subsidiaries is responsible for their own liquidity management. For a discussion of Banco Galicia’s liquidity management, see “Banco Galicia’s Liquidity Management-Banco Galicia Liquidity Management”. Consolidated Cash Flows Our consolidated statements of cash flows were prepared in accordance with IAS 7 (Statements of Cash Flows). See our consolidated cash flow statements as of and for the fiscal years ended December 31, 2019, December 31, 2018 and December 31, 2017 included in this annual report. As of December 31, 2019, on a consolidated basis, we had Ps.232,119 million in available cash (defined as total cash and cash equivalents), representing a Ps.115,340 million decrease as compared to As of December 31, 2018, on a consolidated basis, we had Ps.347,459 million in available cash, representing a Ps.144,465 million increase as compared to the Ps.202,994 million in available cash as of December 31, 2017. Cash equivalents are comprised of the following: Argentine Central Bank debt instruments having a remaining maturity that does not exceed 90 days, securities in connection with reverse repurchase agreement transactions with the Argentine Central Bank, local interbank loans and overnight placements in correspondent banks abroad. Cash equivalents also comprise, in the case of Tarjetas Regionales, time deposit certificates and mutual fund shares. The table below summarizes the information from our consolidated statements of cash flows for the fiscal
Our operating activities include the operating results, the origination of loans and other financing transactions with the private sector, as well as raising customer deposits and entering into sales of government securities under repurchase agreement transactions. Our investing activities primarily Management believes that cash flows from operations and
The following is a summary of the biographies of the members of our Board of Directors: Eduardo J. Escasany: Mr. Escasany obtained a degree in economics at the Universidad Católica Argentina. He was associated with Banco Galicia from 1973 to 2002. He was appointed to Banco Galicia’s board of directors in 1975. In 1979, he was elected as the vice chairman and from 1989 to March 21, 2002 he served as the chairman of Banco Galicia’s board of directors and its chief executive officer. He served as the vice chairman of the Argentine Bankers Association from 1989 to 1993 and the chairman of such association from 1993 to 2002. He was chairman of the Board of Directors from April 2002 to June 2002. In April 2005, he was re-elected as member of the Board of Directors and appointed as chairman in 2010. He is also a lifetime trustee and Pablo Gutierrez: Mr. Gutierrez obtained a degree in business administration at the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1985, where he served in different positions. In April 2005, he was appointed to the board of directors of Banco Galicia. Mr. Gutierrez is Abel Federico trustee of the Fundación Banco de Galicia y Buenos Aires. He has been a member of the Board of Directors since September 1999. Silvestre Vila Moret: Mr. Vila Moret obtained a degree in banking administration at the Universidad Católica Argentina. He was associated with Banco Galicia from 1997 until May 2002. Mr. Vila Moret is also vice chairman of El Benteveo S.A. and Santa Ofelia S.A. He has served as on the Board of Directors since June 2002. He is a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. Mr. Vila Moret is the nephew of Mr. Eduardo J. Escasany. Daniel Antonio Llambías:Mr. Llambías obtained a degree in national public accounting at the Universidad de Buenos Aires.He has been associated with Banco Galicia since 1964.He was elected as an alternate director of Banco Galicia in September 1997 and served as a director from September 2001 until August 2009, when he was appointed Chief Executive Officer.Mr. Llambías is also a director of Tarjeta Naranja and Tarjetas Regionales and an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. He served as the chairman of ADEBA from April 2016 to April 2017. Mr. Llambías was appointed as a director of Grupo Financiero Galicia in April 2017. Pedro Alberto Richards:Mr. Richards obtained a degree in economics from the Universidad Católica Argentina. He holds a Master of Science in Management from the Sloan School of Management at the Massachusetts Institute of Technology. He was the director of the National Development Bank. He has been associated with Banco Galicia since 1990. He was a member of the board of directors of Galicia Capital Markets S.A. between 1992 and 1994 and vice chairman of Net Investment between September 2001 and May 2007. Since August 2000, he served as Grupo Financiero Galicia’s managing director and from 2010 as our Chief Executive Officer. Mr. Richards is also Director of Galicia Warrants, and director of Galicia Administradora de Fondos S.A. Mr. Richards was an alternate director of Grupo Financiero Galicia from April 2003 until April 2005, after which he served as a director until April 14, 2010. He was appointed as a director of Grupo Financiero Galicia in April 2017.
Claudia Raquel Estecho:Mrs. Estecho obtained a degree in accounting at the Universidad de Buenos Aires. She has also completed specialized training programs in the areas of Human Resources, Risk and Executive Management at the Ricardo Alberto Gonzalez: Mr. Gonzalez served in various positions at Banco Galicia between 1973 and December 2009, mainly in the retail division and the credit department. He retired as general manager of the corporate banking division. In April 2019, he was appointed as alternate director of Grupo Financiero Galicia. Sergio Grinenco: Mr. Grinenco obtained a degree in economics from the Universidad Católica Argentina and a master’s in business administration from Babson College in Wellesley, Massachusetts. He has been associated with Banco Galicia since 1977. He has served as an alternate director of Grupo Financiero Galicia since September 2001 and as the vice chairman from April 2003 to 2011. Mr. Grinenco is also an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. In 2012, he was appointed as the chairman of Banco Galicia. Alejandro María Rojas Ana María
Our Board of Directors may consist of between three and nine permanent members. Currently our Board of Directors has nine members. In addition, the number of alternate directors who act in the temporary or permanent absence of a director has been set at four. The regular and alternate directors are elected by the shareholders at our annual general shareholders’ meeting. Directors and alternate directors are elected for a maximum term of three years. Mr. Sergio Grinenco is also a director of Banco Galicia. In addition, some members of our Board of Directors may serve on the board of directors of any subsidiary. Five of our directors are members of the families that are the controlling shareholders of Grupo Financiero Galicia. Grupo Financiero Galicia complies with the provisions set forth by the Capital Markets Law and the regulations set forth by the CNV, which require that companies which make a public offering of shares should form an Audit Committee, and develop a charter with regulations for its operation. Accordingly, the Board of Directors established an Audit Committee with three members.For fiscal year
Mr. Daniel Llambías, was the financial expert serving on our Audit Committee during fiscal year 2019. As a consequence of the resignation presented by Mr. Ricardo A. Gonzalez to his position as member of the Audit Committee, the shareholders' meeting held on April 28, 2020, elected Mr. Miguel Maxwell to replace said position. Therefore, the Board of Directors, on the same day, designated Mr. Miguel Maxwell as the new member of the Audit Committee. Mr. Maxwell is independent under the CNV and Nasdaq requirements and have an extensive and recognized managerial experience. According to the CNV rules, the Audit Committee is primarily responsible for (i) issuing a report on the Board of Directors’ proposals for the appointment of the independent auditors and the compensation for the Directors, (ii) issuing a report detailing the activities performed according to the CNV requirements, (iii) issuing the Audit Committee’s annual plan and implementing it each fiscal year, (iv) evaluating the external auditors’ independence, work plans and performance, (v) evaluating the plans and performance of the internal auditors, (vi) supervising the reliability of our internal control systems, including the accounting system, and of external reporting of financial or other information, (vii) following-up on the use of information policies on risk management at Grupo Financiero Galicia’s main subsidiaries, (viii) evaluating the reliability of the financial information to be filed with the CNV and the SEC, (ix) verifying compliance with the applicable conduct rules, and (x) issuing a report on related party transactions and disclosing any transaction where a conflict of interest exists with corporate governance bodies and controlling shareholders. The Audit Committee has access to all information and documentation that it requires and is broadly empowered to fulfill its duties. During
Our Executive Committee The Executive Committee was created to assist with the management of the Company's ordinary business and help the Board of Directors in fulfilling its duties. The Committee is composed of between two and five members of the Board of Directors and the President of the Board of Directors acts as its chairman. The duties of this committee include: gathering legal, economic, financial and business information on the Company’s subsidiaries and investee companies; making investment decisions; appointing the Company's first-tier managers; proposing a strategic plan for the Company and its subsidiaries; making annual budget estimates for the Board of Directors, and performing risk assessments. The members of the Executive Committee are Messrs. Eduardo J. Escasany, Pablo Gutiérrez, Abel Ayerza, Federico Braun and Silvestre Vila Moret. Our Ethics, Conduct and Integrity Committee The Ethics, Conduct and Integrity Committee was created as part of the Company’s Ethics and Integrity Program, in order to promote respect for norms and regulations, the principles of good conduct and our Code of Ethics. The objective of this Committee, (apart from complying with the duties required to be performed by applicable Argentine laws), is to monitor and review reports of conducts contrary to our Code of Ethics, and to decide whether the conduct under review violated our Code of Ethics; evaluate the evolution and effectiveness of our Ethics and Integrity Program; and plan, coordinate and supervise compliance with the relevant policies approved by this Committee. This committee is formed by two independent Directors, the Chief Financial Officer, the responsible for the Integrity program of the Company and is chaired by one of regular Directors. The members are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, José Luis Ronsini and Adrián Enrique Pedemonte. Our Nomination and Compensation Committee The Nomination and Compensation Committee was created to facilitate the analysis and monitoring of several issues based on good corporate governance practices. Said Committee is composed of 5 regular Directors, two of them independent and is chaired by of one independent Director. Even though under Argentine law the appointment of new members to the Board of Directors remains within exclusive power of the shareholders, this Committee assists the Board of Directors in the preparation and design of a succession plan for its members, in particular for the Chairman of the Board and the Chairman of the Audit Committee. This committee reviews the background, training and professional experience of potential candidates to serve the Board and determines their level of compensation in accordance with market standards. The members of the committee are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, Eduardo J. Escasany, Pablo Gutierrez and Federico Braun. Our Disclosure Committee We have established a Disclosure Committee in response to the U.S. Sarbanes-Oxley Act of 2002. The main responsibility of this committee is to review and approve controls on the public disclosure of financial and related information, and other procedures necessary that enable our Chief Executive Officer and Chief Financial Officer to provide their certifications for the annual report we file with the SEC. The members of this committee are Messrs. Pedro A. Richards, José Luis Ronsini, Adrián Enrique Pedemonte and Ms. Mariana Saavedra. In addition, at least one of the members of this committee attends all the meetings of our principal subsidiaries’ disclosure committees. Our Supervisory Committee Our bylaws provide for a Supervisory Committee consisting of three members who are referred to as syndics (“syndics”) and three alternate members who are referred to as alternate syndics (“alternate syndics”). In accordance with the Corporations Law and our bylaws, the syndics and alternate syndics are responsible for ensuring that all of our actions are in accordance with applicable Argentine law. Syndics and alternate syndics are elected by the shareholders at the annual general shareholders’ meeting. Syndics and alternate syndics do not have management functions. Syndics are responsible for, among other things, preparing a report to shareholders analyzing our financial statements for each year and recommending to the shareholders whether to approve such financial statements. Alternate syndics act in the temporary or permanent absence of a syndic. Currently, there are three syndics and three alternate syndics. Syndics and alternate syndics are elected for a one-year term. The following table shows the members of our Supervisory Committee. Each of our syndics was appointed at the ordinary shareholders’ meeting held on April
(1) “Ad referendum” of the authorization of the Argentine Central Bank.
The following is a summary of the biographies of the members of our Supervisory Committee: Antonio Roberto Garcés: Mr. Garcés obtained a degree in accounting from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1959 and with Grupo Financiero Galicia since 2002. In April 1985, he was appointed as an alternate director of Banco Galicia. Subsequently, he was appointed as the vice chairman of Banco Galicia in September 2001, as the chairman of the board of directors of Banco Galicia from March 2002 until August 2002 and then as the vice chairman from August 2002 until April 2003, when he was elected to serve as chairman of Banco Galicia’s board of directors until 2011. From 2003 to 2010 he was the chairman of Grupo Financiero Galicia. From April 2012 until April 2019, Mr. Garcés was appointed as a regular director of Grupo Financiero Galicia. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. Additionally, he is a regular syndic of Galicia Valores and Galicia Warrants. José Luis Gentile: Mr. Gentile obtained a degree in accounting from the Universidad de Buenos Aires. He has provided services to Grupo Financiero Galicia since 1999 to March Omar Severini: Mr. Severini obtained a degree in accounting from the Universidad de Belgrano and a degree in finance with a concentration in capital markets from UCEMA. He has been associated with Banco Galicia since 1978 and served in positions responsible for the regular audit from 1986 to 2009. He served as Internal Auditor Manager to Banco Galicia between 2009 and 2017. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2018. Additionally, he is a regular syndic of Galicia Valores, Galicia Warrants, Tarjetas Regionales, Tarjeta Naranja, and of other subsidiaries of Banco Galicia and Grupo Financiero Miguel Norberto Armando:Mr. Armando obtained a law degree from the Universidad de Buenos Aires.He was first elected as an alternate syndic of Banco Galicia from 1986 until 2017. He also acted as an alternate syndic of Grupo Financiero Galicia between 1999 and January 2009 at which point he became a regular syndic until April 2009 and was reelected as an alternate syndic of Grupo Financiero Galicia until April 2018. He was elected as an alternate syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. He is the chairman of Arnoar S.A. Mr. Armando is also a regular syndic of EBA Holding S.A., Electrigal S.A. and an alternate syndic of Galicia Valores, Galicia Seguros, Sudamericana Holding, Marin and Finisterra, among others. Fernando Noetinger:Mr. Noetinger obtained a law degree from the Universidad de Buenos Aires.He has been associated with Banco Galicia since 1987. He was and has been an alternate syndic of Grupo Financiero Galicia from September 1999 to June 2002 and from April 2006 to date.Mr. Noetinger is also chairman of Villa Rosa S.A. and Doña Ines S.A., an alternate director of Arnoar S.A., and an alternate syndic of EBA Holding S.A., Electrigal S.A., Tarjetas Regionales, Galicia Warrants, Galicia Valores, Banco Galicia, Galicia Retiro, Galicia Seguros, and Sudamericana Holding, among others.
Management of Grupo Financiero Galicia Our organizational structure consists of the Chief Executive Officer who reports to the Board of Directors, and the Chief Financial Officer who reports to the Chief Executive Officer and is in charge of the Financial and Accounting Division. The Chief Executive Officer’s primary responsibilities consist of implementing the policies defined by the Board of Directors, as well as providing recommendations to the Board of Directors regarding future plans, budgets and company organization. He is also responsible for supervising the Financial and Accounting Division and assessing the attainment of performance goals of Grupo Financiero Galicia. The Chief Executive Officer also participates in meetings of the Board of Directors of the Company and certain subsidiaries. Our Chief Executive Officer is Mr. Pedro A. Richards, please see “─ Our Board of Directors”. Our Chief Financial Officer is Mr. José Luis Ronsini. Mr. Ronsini obtained a degree in accounting from the Universidad Católica Argentina. He holds a Master in Finance from the University of CEMA, and attended the Senior Management Program at the Universidad de San Andrés. He has been associated with Banco Galicia since 2001. He previously served as the Chief Credit Risk auditor, responsible for subsidiaries, Tarjetas Regionales, and Galicia Administradora de Fondos S.A. Mr. Ronsini has served as General Accountant of Banco Galicia since 2012. The Financial and Accounting Division is mainly responsible for the assessment of investment alternatives, thus suggesting whether to invest or withdraw Grupo Financiero Galicia’s positions in different companies or businesses. It also plans and coordinates Grupo Financiero Galicia’s administrative services and financial resources in order to guarantee its proper management. This division also aims at meeting requirements set by several controlling authorities, managing the Integrity plan, complying with information and internal control needs and budgeting purposes. Furthermore, it includes functions aimed at planning, preparing, coordinating, controlling and providing financial information to the stock exchanges where Grupo Financiero Galicia’s shares are listed, regulatory bodies and both domestic and international investors and analysts. It facilitates the provision of materials and responses to questions sent by shareholders and investors in general through a specifically designed “contact us”, located in our web page.
Board of Directors of Banco Galicia At the ordinary shareholders’ meeting held on April held by each of them, their dates of birth, their principal occupations, the dates of their appointment and the year in which their current terms will expire. The business address of the members of the Banco Galicia’s board of directors is Tte. General J. D. Perón 430, 24th floor (C1038AAI) Buenos Aires, Argentina.
(1) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Mrs. Casasnovas is an independent director. Mrs. Casasnovas is also an independent director in accordance with the Nasdaq rules. (2) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Messrs. Gonzalez and (3) “Ad referendum” of the authorization of the Argentine Central Bank. The following are the biographies of the members of the board of directors of Banco Galicia: Sergio Grinenco: See Raúl Héctor Seoane: Mr. Seoane obtained a degree in economics from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1988. Mr. Seoane was first elected as an alternate director of Banco Galicia from 2005 until December 2011, and in April 2012 was elected as a director. He is also a vice chairman of Distrocuyo S.A. and an alternate trustee of Fundación Banco de Galicia y Buenos Aires. Guillermo Juan Pando: Mr. Pando has been associated with Banco Galicia since 1969. He was first elected as an alternate director of Banco Galicia from September 2001 until June 2002, and in April 2003 he was elected as a director. He is also the chairman of Santiago Salud S.A. and Distrocuyo S.A., vice chairman of Electrigal S.A., and an alternate trustee of Fundación Banco de Galicia y Buenos Aires. María Elena Casasnovas: Mrs. Casasnovas obtained a degree in law from the Universidad Católica Argentina. She completed the Program for High Management at Universidad Torcuato Di Tella and the Senior Management Program at Universidad San Andrés. She has been associated with Banco Galicia since 1972. In April 2016, she was elected as a director. Juan Carlos L’Afflitto: Mr. L’Afflitto obtained a degree in national public accounting at the Universidad de Buenos Aires. He worked as advisor and accountant at Morgan, Benedit y Asociados and until 1990 he was a professor at the Universidad Católica Argentina. He has been associated with Banco Galicia since 1986. In April 2016, he was elected as a director. Gastón Bourdieu: Mr. Bourdieu obtained a degree in agricultural administration from the Universidad Argentina de la Ignacio Abel González: Mr. González obtained a degree in national public accounting from the Universidad de Buenos Aires and a master in Auditing at Drew University, New Jersey. Previously, he served as a Member of the International Committee of Finance & Value Sharing, PricewaterhouseCoopers. He was appointed as director of Banco Galicia in April 2010 and he was elected as an alternate director in April 2018. He is also director of IDEA and syndic of Sociedad Anónima La Nación, Nuevos Medios La Nación, Publirevistas, Sociedad Anónima Importadora y Exportadora de la Patagonia, and the founder and president of P.O.D.E.R (Polo de Desarrollo Educativo Renovador).
Augusto Rodolfo Zapiola Macnab: Mr. Zapiola Macnab obtained a degree in economics from the Pontificia Universidad Catolica Argentina. He has been associated with Banco Galicia from June 1978 until September 2002. He was elected as an alternate director of Banco Galicia in April 2013. He was elected as an alternate director on the Board of Directors of Grupo Galicia in April 2015. Functions of the Board of Directors of Banco Galicia Banco Galicia’s board of directors may consist of three to nine permanent members.In addition, there can be one or more alternate directors who can act during the temporary or permanent absence of a director. As of the date of this annual report, none of the directors were also employees. The Board of Directors meets formally Members of the Bank’s Board of Directors serve in the following committees: Human Resources and Governance Committee: Risk and Capital Allocation Committee: This committee is comprised of six regular Directors, the General Manager, and the Area Managers of Risks and Planning. It is responsible for approving and analyzing capital allocation, setting up risk policies and monitoring risks for the Bank. It meets at least once every two-months. Its resolutions are summarized in writing in minutes.
High Credits Committee:this committee is comprised of five regular Directors, the General Manager, and Low Credits Committee:this committee is comprised of three regular Directors, the Systems Committee: this committee is comprised of
Audit Committee:
Money Laundering and
Strategy and New Businesses Committee:this committee is comprised of three regular Directors, the General Manager and the Planning and Risk Area Managers. It is responsible for analyzing new business. It meets at least once
Liquidity Crisis Committee:
Compliance Committee: this committee is comprised of Financial Services User Protection Committee: this committee is comprised of two regular Directors, the Money Laundering Prevention and Compliance Manager, the Operational Risk Manager, the Legal Advice Manager and the Experience Information Assets Protection Committee: this committee is comprised of two regular Directors, the Risk Area Manager, the System Manager, the Audit Manager and the Information Security Manager. It is responsible for generating/having an agile and professional environment for the definition of and decision-making regarding strategies/policies related to the information security of the Bank. It meets at least once every three months, or more frequently whenever there are issues requiring to be addressed urgently. Its resolutions are summarized in These committees provide written minutes on a monthly basis to the Board of Banco Galicia’s Supervisory Committee Banco Galicia’s bylaws provide for a Supervisory Committee consisting of three syndics and three alternate syndics. The table below shows the composition of Banco Galicia’s Supervisory Committee as they were re-elected by the annual shareholders’ meeting held on April
For the biographies of Banco Galicia’s Executive Officers On October 7, 2015, Mr. Fabián Enrique Kon was appointed as the Chief Executive Officer of Banco Galicia. The Chief Executive Officer is responsible for implementing the strategic goals established by Banco Galicia’s Board of Directors and coordinating with the Managers of the Bank’s Divisions. Mr. Kon reports to the Board of Directors. Fabián Enrique Kon: Mr. Kon obtained a degree in national public accounting from the Universidad de Buenos Aires. He has worked at Pistrelli, Diaz y Asociados, Accenture, Exolgan Container Terminal and Tradecom, in managerial positions. From 2006 to February 2014, he served as Galicia Seguros’ Chief Executive Officer and was appointed as Banco Galicia’s retail banking manager in March 2014. Mr. Kon is also the chairman of Sudamericana Holding, vice chairman of Tarjetas Regionales and director of Tarjeta Naranja. As of the date of this annual report, the following divisions and department managers report to Banco Galicia’s Chief Executive Officer:
Wholesale Banking Retail Banking Area Management: It is objectives of the Bank, guaranteeing volume, profitability, quality and customer satisfaction, within the Retail Banking Financial Banking Area Management:
Risks Area Management: It is responsible for
Integrated Corporate Services
People Area Management: It is responsible for
Planning Customer Experience
Internal Audit
The following are the biographies of Banco Galicia’s senior executive officers mentioned above: Marcelo Iraola: Mr. Iraola obtained a degree in law from the Universidad de Buenos Aires. He completed the Program for Executive Development at Instituto Argentino de Empresas and a business management program at the Universidad de San Andres. He has been associated with Banco Galicia since 1988. He is also the chairman of Galicia Warrants, a director of Sudamericana Holding S.A. and an alternate director of Tarjetas Regionales. Germán Alejandro Ghisoni: Mr. Ghisoni obtained a degree in business management from the Universidad Católica Argentina. He completed the Program for Executive Development at Instituto Argentino de Empresas, the Strategic Management in Banking Program at INSEAD and the Customer Centric Organitatios at Kellogg School of Management. He has been associated with Banco Galicia since 1995. He is also a director of Sudamericana Holding and an alternate director of Tarjetas Regionales and Tarjeta Naranja. Pablo Maria Leon: Mr. Leon obtained a degree in finance from the Universidad de Palermo and two executive development programs at Instituto Argentino de Empresas and IMD in Lausanne, Switzerland. He has been associated with Banco Galicia since 1987. He is also the chairman of Galicia Valores and director of Argenclear S.A. Diego Rivas: Mr. Rivas obtained a degree in business administration from the Universidad Argentina de la Empresa. He also completed a postgraduate degree in finance at the CEMA and management development programs at IMD in Lausanne, Switzerland, as well as a postgraduate degree in Risk Management at the Wharton School at University of Pennsylvania. Mr. Rivas has been associated with Banco Galicia since 1987. In May 2016, he was appointed Risk Control Area Manager of Banco Galicia. Mr. Rivas is also vice chairman of Ondara and an alternate director of Tarjeta Naranja. Maria Marcela Fernie: Ms. Fernie obtained a degree in economics from the Universidad Católica Argentina. She has been associated with Banco Galicia since 2011. She is a director of COELSA and an alternate director of Tarjetas Regionales and Tarjeta Naranja. Rafael Pablo Bergés: Mr. Bergés obtained a degree in industrial engineering from Universidad de Buenos Aires. He has been associated with Banco Galicia since August 2010. Prior to such time, he worked at Techint and at a several multinational companies in managerial positions. From 1998 to 2009, he was vice president of the Human Resources Division of Grupo Telefónica. Bruno Folino: Mr. Folino obtained an accounting degree from the Universidad de Buenos Aires. He completed a post-graduate degree in Tax & Legal at the Universidad Austral and a Master in Science of Management from GSB Stanford University. He started his career as an auditor at Price Waterhouse & Co. before moving to the Tax & Legal Department. He has been associated with Banco Galicia since 1997 as Tax Manager and Planning Manager. In 2012, he was appointed Planning Manager. Flavio Dogliolo: Mr. Dogliolo obtained a degree in business administration from the Universidad Católica Argentina. He received an MBA from the Universidad Austral. He was the manager of means of payments and automatic banking at Banco Bansud S.A., manager of quality and service productivity at Banco Río de la Plata S.A. and he worked in marketing database and commercial planning at Siembra AFJP S.A. He has been associated with the Bank since 1998. Claudio Scarso: Mr. Scarso obtained a degree in systems engineering from the Universidad Argentina de la Empresa. He has been associated with Banco Galicia since 1995. Teresa del Carmen Piraino: Ms. Piraino obtained a degree in accounting from the Universidad Argentina de la Empresa. She completed a post-graduate degree in Anti-Money Laundering and Financial Crime Prevention from the Universidad de Buenos Aires. She has been associated with Banco Galicia since 1992. Compensation Compensation of Our Directors Compensation for the members of the Board of Directors is considered by the shareholders at the shareholders’ meeting once the fiscal year has ended. Directors are paid an annual fee based on the functions they carry out and they may receive partial advance payments during the year. At the ordinary shareholders’ meeting held on April We do not maintain a stock-option, profit-sharing or pension plan for the benefit of our directors. We do not have a policy establishing any termination benefits for our directors. Compensation of Banco Banco Galicia’s board of directors establishes the policy for compensation of Banco Galicia’s personnel. Banco Galicia’s managers receive a fixed compensation. At the ordinary shareholders’ meeting held on April Nasdaq Corporate Governance Standards Pursuant to Nasdaq Marketplace Rule 5615(a) (3), a foreign private issuer may follow home country corporate governance practices in lieu of the requirements of the Rule 5600 Series, provided that the foreign private issuer complies with certain sections of the Rule 5000 Series, discloses each requirement that it does not follow and describes the home relevant country practice followed in lieu of such requirement. The requirements of the Rule 5000 Series and the Argentine corporate governance practice that we follow in lieu thereof are described below:
Rule 5250 (d) – Distribution of Annual and Interim Reports. In lieu of the requirements of Rule 5250 (d), we follow Argentine law, which requires that companies make public a Spanish language annual report, including annual audited consolidated financial statements, by filing such annual report with the CNV and the BASE, within 70 calendar days of the end of the company’s fiscal year. Interim reports must be filed with the CNV and the BASE within 42 calendar days of the end of each fiscal quarter. The BASE publishes the annual reports and interim reports in the BASE bulletin and makes the bulletin available for inspection at its offices. In addition, our shareholders can receive copies of our annual reports and any interim reports upon such shareholders’ request. English language translations of our annual reports and interim reports are furnished to the SEC. We also post the English language translation of our annual reports and quarterly press releases on our website. Furthermore, under the terms of the Second Amended and Restated Deposit Agreement, dated as of June 22, 2000, among us, The Bank of New York, as depositary, and owners of ADSs issued thereunder, we are required to furnish The Bank of New York with, among other things, English language translations of our annual reports and each of our quarterly press releases. Annual reports and quarterly press releases are available for inspection by ADRs holders at the offices of The Bank of New York located at 240 Greenwich Street, New York, New York. Finally, Argentine law requires that 20 calendar days before the date of a shareholders’ meeting, the board of directors must provide to the shareholders, at the company’s executive office or through electronic means, all information relevant to the shareholders’ meeting, including copies of any documents to be considered by the shareholders (which includes the annual report), as well as proposals of the company’s board of directors. (ii) Rule 5605 (b) (2) – Executive Sessions of Independent Directors. In lieu of the requirements of Rule 5605 (b) (2), we follow Argentine law which does not require independent directors to hold regularly scheduled meetings at which only such independent directors are present (i.e., executive sessions). Our Board of Directors as a whole is responsible for monitoring our affairs. In addition, under Argentine law, the board of directors may approve the delegation of specific responsibilities to designated directors or non-director managers of the company. Also, it is mandatory for public companies to form a supervisory committee (composed of syndics), which is responsible for monitoring the legality of the company’s actions under Argentine law and the conformity thereof with its bylaws. (iii) Rule 5605 (d) – Compensation of Officers. In lieu of the requirements of Rule 5605 (d), we follow Argentine law, which does not require companies to form a compensation committee comprised solely of independent directors. It also is not required under Argentine law that the compensation of the Chief Executive Officer and all other executive officers be determined by either a majority of the independent directors or a compensation committee comprised solely of independent directors. Under Argentine law, the board of directors is the corporate body responsible for determining the compensation of the Chief Executive Officer and all other executive officers, so long as they are not directors. In addition, under Argentine law, the audit committee shall give its opinion about the reasonableness of management’s proposals on fees and option plans for directors or managers of the company. Finally, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2). (iv) Rule 5605 (e) (1) – Nomination of Directors. In lieu of the requirements of Rule 5605 (e) (1), we follow Argentine law which requires that directors be nominated directly by the shareholders at the shareholders’ meeting and that they be selected and recommended by the shareholders themselves. Under Argentine law, it is the responsibility of the ordinary shareholders’ meeting to appoint and remove directors and to set their compensation. However, the Company, based on the best practices in corporate governance has created a Nomination and Compensation Committee, chaired by an independent Director and composed by 5 members of the Board of Directors. Said Committee aims to assist the Board of Directors to prepare a proposal to nominate candidates to fill its positions, to prepare and design a succession plan and to determine its compensation levels. In addition, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2).
(v) Rule 5605 (c) (1) – Audit Committee Charter. In lieu of the requirements of Rule 5605 (c) (1), we follow Argentine law, which requires that audit committees have a charter but does not require that companies certify as to the adoption of the charter nor does it require an annual review and assessment thereof. Argentine law instead requires that companies prepare an annual report describing its activities and propose a plan or course of action with respect to those matters, which are the responsibility of the company’s audit committee. Such plan or course of action could, at the discretion of our audit committee, include a review and assessment of the audit committee charter. (vi) Rule 5605 (c) (2) – Audit Committee Composition. Argentine law does not require, and it is equally not customary business practice in Argentina, that companies have an audit committee comprised solely of independent directors. Argentine law instead requires that companies establish an audit committee with at least three members comprised of a majority of independent directors as defined by Argentine law. Since fiscal year 2017, the Audit Committee is comprised of three Directors, two of them independent pursuant to the definition of independence in Rule 10 A-3 (b) (1) and the Argentine law, one of which the Board of Directors determined to be a financial expert. In addition, we have a supervisory committee (“comisión fiscalizadora”) composed of three syndics, who are responsible for monitoring the legality, under Argentine law, of the actions of our Board of Directors and the conformity of such actions with our bylaws. (vii) Rule 5620 (c) – Quorum. In lieu of the requirements of Rule 5620 (c), we follow Argentine law and our bylaws, which distinguish between ordinary meetings and extraordinary meetings and require, in connection with ordinary meetings, that a quorum consist of a majority of stock entitled to vote. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, constitute a quorum and resolutions may be adopted by an absolute majority of the votes present. Argentine law and our bylaws require, in connection with extraordinary meetings, that a quorum consist of 60% of the stock entitled to vote. However, if such quorum is not present at the first meeting, our bylaws provide that a second meeting may be called which may be held with the number of shareholders present. In both ordinary and extraordinary meetings, decisions are adopted by an absolute majority of votes present at the meeting, except for certain fundamental matters (such as mergers and spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), anticipated liquidation, a change in our domicile to outside of Argentina, total or partial recapitalization of our statutory capital following a loss, any transformation in our corporate legal form or a substantial change in our corporate purpose) which require an approval by vote of the majority of all the stock entitled to vote (all stock being entitled to only one vote). (viii) Rule 5620 (b) – Solicitation of Proxies. In lieu of the requirements of Rule 5620 (b), we follow Argentine law which requires that notices of shareholders’ meetings be published, for five consecutive days, in the Official Gazette and in a widely circulated newspaper in Argentina no earlier than 45 calendar days prior to the meeting and at least 20 calendar days prior to such meeting. In order to attend a meeting and be listed on the meeting registry, shareholders are required to submit evidence of their book-entry share account held at Caja de ValoresS.A. up to three business days prior to the scheduled meeting date. If entitled to attend the meeting, a shareholder may be represented by proxy (properly executed and delivered with a certified signature) granted to any other person, with the exception of a director, syndic, member of the surveillance committee (“consejo de vigilancia”), manager or employee of the issuer, which are prohibited by Argentine law from acting as proxies. In addition, our ADRs holders receive, prior to the shareholders’ meeting, a notice listing the matters on the agenda, a copy of the annual report and a voting card.
Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards. Employees The following table shows the composition of our staff:
Within the current legal framework, membership in an employee union is voluntary and there is only one union of bank employees with national representation. As of December 31, In general, during the first four months of We have a human resources policy that aims at providing our employees possibilities for growth and personal and socio-economic achievement. We will continue our current policy of monitoring both wage levels and labor conditions in the financial industry in order to be competitive. Our employees receive fixed compensation and may receive variable compensation according to their level of achievement. We do not maintain any profit-sharing programs for our employees. In a survey conducted in second for the second consecutive year among the best companies to work in Argentina with more than 1,000 employees. The Fundación Banco de Galicia y Buenos Aires (the “Fundación”) is an Argentine non-profit organization that provides various services to Banco Galicia employees. The various activities of the Fundación include, among others, purchasing school materials for the children of Banco Galicia’s employees and making donations to hospitals and other charitable causes, including cultural events. The Fundación is managed by a Council, certain members and alternate members of which are members of our Board of Directors and supervisory committee. Members and alternate members of the Council do not receive remuneration for their services as trustees. Share Ownership For information on the share ownership of our directors and executive officers as of December 31,
As of March 31, Our controlling shareholders are members of the Escasany, Ayerza and Braun families and the Fundación. As of March 31, 2019, the controlling shareholders owned 100% of our class A shares through EBA Holding (representing 19.7% of our total outstanding shares) and Based on information that is available to us, the table below sets forth, as of March 31, Class A Shares
Class B Shares
(1) Pursuant to the requirements of Argentine law, all class B shares represented by ADSs are owned of record by The Bank of New York, as Depositary. The address for the Bank of New York is 101 Barclay Street, New York 10286, and the country of organization is the United States. (2) No member holds more than 2.0% of the capital stock. Such holding includes 15,056,360 shares in the form of ADSs.
Based on information that is available to us, the table below sets forth, as of March 31,
Members of the three controlling families have owned the majority of the issued share capital of Banco Galicia since 1959. Members of the Escasany family have been on the board of directors of Banco Galicia since 1923. The Ayerza and Braun families have been represented on Banco Galicia’s board of directors since 1943 and 1947, respectively. Currently, there are five members of these families on our Board of Directors. On September 13, 1999, the controlling shareholders of Banco Galicia formed EBA Holding S.A., an Argentine corporation, which is 100% owned by our controlling shareholders. EBA Holding holds 100% of our class A shares. Currently, EBA Holding only has class A shares outstanding. EBA Holding’s bylaws provide for certain restrictions on the sale or transfer of its class A shares. While the class A shares of EBA Holding may be transferred to any other class A shareholder of EBA Holding, any transfer of such class A shares to third parties would automatically result in the conversion of the sold shares into class B shares of EBA Holding having one vote per share. In addition, EBA Holding’s bylaws contain rights of first refusal, buy-sell provisions and tag-along rights. As of March 31, Grupo Financiero Galicia and its non-banking subsidiaries are not a party to any transactions with, and have not made any loans to any (i) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by Grupo Financiero Galicia or its non-banking subsidiaries, (ii) associates (i.e., an unconsolidated enterprise in which Grupo Financiero Galicia or its non-banking subsidiaries has a significant influence or which has significant influence over Grupo Financiero Galicia or its non-banking subsidiaries), (iii) individuals owning, directly or indirectly, an interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries that gives them significant influence over Grupo Financiero Galicia or its non-banking subsidiaries, as applicable, and close members of any such individual’s family (i.e., those family members that may be expected to influence, or be influenced by, that person in their dealings with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable), (iv) key management personnel (i.e., persons that have authority and responsibility for planning, directing and controlling the activities of Grupo Financiero Galicia or its non-banking subsidiaries, including directors and senior management of companies and close members of such individual’s family) or (v) enterprises in which a substantial interest is owned, directly or indirectly, by any person described in (iii) or (iv) over which such a person is able to exercise significant influence nor are there any proposed transactions with such persons. For purposes of this paragraph, this includes enterprises owned by directors or major shareholders of Grupo Financiero Galicia or its non-banking subsidiaries that have a member of key management in common with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable. In addition, “significant influence” means the power to participate in the financial and operating policy decisions of the enterprise but means less than control. Shareholders beneficially owning a 10% interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries are presumed to have a significant influence on Grupo Financiero Galicia or its non-banking subsidiaries, as applicable. Some of our directors and the directors of Banco Galicia have been involved in certain credit transactions with Banco Galicia as permitted by Argentine law. The Corporations Law and the Argentine Central Bank’s regulations allow directors of a limited liability company to enter into a transaction with such company if such transaction follows prevailing market conditions. Additionally, a bank’s total financial exposure to related individuals or legal entities is subject to the regulations of the Argentine Central Bank. Such regulations set limits on the amount of financial exposure that can be extended by a bank to affiliates based on, among other things, a percentage of a bank’s Banco Galicia is required by the Argentine Central Bank to present to its board of directors, on a monthly basis, the outstanding amounts of financial assistance granted to directors, controlling shareholders, officers and other related entities, which are transcribed in the minute books of the board of directors of Banco Galicia. The Argentine Central Bank establishes that the financial assistance granted to directors, controlling shareholders, officers and other related entities must be granted on an equal basis with respect to rates, tenor and guarantees as loans granted to the general public. In this section “total financial exposure” comprises equity interests and financial assistance (all credit related items such as loans, holdings of corporate debt securities without quotation, guarantees granted and unused balances of loans granted, among others), as this term is defined in Item 4. “Information on the “Related parties” refers mainly to our directors and the directors of Banco Galicia, our senior officers and senior officers of Banco Galicia, our syndics and Banco Galicia’s syndics, our controlling shareholders as well as all individuals who are related to them by a family relationship and any entities directly or indirectly affiliated with any of these parties, not required to be consolidated. The following table presents the aggregate amounts of total financial exposure of Banco Galicia to related parties, the number of recipients, the average amounts and the single largest exposures as of the end of the two fiscal years ended December 31,
The financial assistance granted to our directors, officers and related parties by Banco Galicia was granted in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related parties, and did not involve more than the normal risk of collectability or present other unfavorable features. In June 2011, Banco Galicia entered into an agreement with Galicia Seguros, a company indirectly controlled by Grupo Financiero Galicia, pursuant to which the Bank can offer insurance products on behalf of Galicia Seguros. In addition, they entered into an agreement for a one-year period pursuant to which Galicia Seguros insures the Bank for the balances of certain loans in the case of death of its clients. On July 31, 2014, Banco Galicia renewed both agreements with Galicia Seguros, for an additional year, with automatic deferral. Such agreements were considered to be “related party transactions” pursuant to Section 72 of the Capital Markets Law. On March 11, 2015, Banco Galicia’s board of directors granted a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.230 million with a maturity date of June 30, 2016 (equivalent to On March 14, 2017, Banco Galicia’s board of directors decided to grant a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.500 million with a maturity date of June 30, 2018 (equivalent to
Consolidated Financial Statements We have elected to provide the financial information set forth in Item 18 of this annual report. Legal Proceedings We are a party to the following legal proceedings: Banco Galicia In response to certain pending legal proceedings, Banco Galicia has recorded reserves to cover (i) various types of claims filed by customers against it (e.g., claims for thefts from safe deposit boxes, collections of checks that had been fraudulently altered, discrepancies related to deposit and payment services rendered to Banco Galicia’s customers, etc.) and (ii) estimated amounts payable under labor-related lawsuits filed against Banco Galicia by former employees. With regard to the Autonomous City of Buenos In connection with the assessments made by the tax collection authorities from the Province of Buenos Aires, under the framework of some of the processes under discussion at the Provincial Tax Court, at this stage of proceedings the Furthermore, Banco Galicia As of December 31, 2019, a number of claims for repayment of income tax overpaid for the 2014, 2015, 2016, 2017 and 2018 tax years for the total sum of $6,350,696,000 are based on the above-five jurisprudence establishing the unconstitutionality of rules that disenable the application of the tax inflation adjustment, which results in confiscatory situations. In the face of the delay in resolving the tax code, claims were initiated. At the close of these financial statements, the Bank does not record contingent assets derived from the above-mentioned claims. Consumer Protection Associations, on behalf of consumers, have filed claims against Banco Galicia in connection with the collection of certain financial charges. The Bank does not believe that the resolution of these controversies will have a significant impact on its financial condition. Tarjetas Regionales The As of December 1, 2017, Tarjeta Naranja had filed a reimbursement claim before the AFIP regarding its income tax for the 2014-2016 fiscal years in an amount equal to In the absence of a response from AFIP, on December 6, 2019, a judicial protection for default was filed with the National Tax Court for the periods 2014 and 2016 of Tarjeta Naranja S.A. On the other hand, and having elapsed the period established in the applicable regulations without obtaining AFIP’s response to the claim, on December 27, 2019, a repetition claim was filed before the Federal Justice for the 2014 and 2016 fiscal years of Tarjeta Cuyanas S.A. and fiscal year 2018 of Tarjeta Naranja S.A. The same lawsuit was filed on December 30, 2019 for the 2017 fiscal year of Tarjeta Naranja S.A. Both claims remain pending before the AFIP. Based on the opinion of tax advisors, each of Tarjeta Naranja and Tarjetas Cuyanas believes that such claims are unfounded and that the taxes related to such claims have been correctly calculated in accordance Dividend Policy and Dividends Dividend Policy Grupo Financiero Galicia’s policy for the distribution of dividends We may only declare and pay dividends out of our retained earnings representing the profit realized on our operations and investments. The Corporations Law and our bylaws state that no profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per share basis. As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired until it is fully restored. The legal reserve is not available for distribution to shareholders. Our ability to pay dividends to our shareholders principally depends on (i) our net income, (ii) cash availability, (iii) indebtedness and (iv) applicable legal requirements. Holders of our ADSs will be entitled to receive any dividends payable in respect of our underlying class B shares. We will pay cash dividends to the ADSs depositary in Pesos, although we reserve the right to pay cash dividends in any other currency, including Dollars. The ADSs deposit agreement provides that the depositary will convert cash dividends received by the ADSs depositary in Pesos to Dollars and, after deduction or upon payment of fees and expenses of the ADSs depositary and deduction of other amounts permitted to be deducted from such cash payments in accordance with the ADSs deposit agreement (such as for unpaid taxes by the ADSs holders in connection with personal asset taxes or otherwise), will make payment to holders of our ADSs in Dollars. Dividends Grupo Financiero Galicia As a holding company, our principal source of cash from which to pay dividends on our shares is dividends or other intercompany transfers from our subsidiaries, primarily Banco Galicia. Due to dividend restrictions contained in Banco Galicia’s loan agreements in connection with Banco Galicia’s foreign debt restructuring - that were lifted when such debt was fully paid during fiscal year 2016 - and in some Argentine Central Bank regulations, our ability to distribute cash dividends to our shareholders has been materially and adversely affected since late 2001 until 2010, when Banco Galicia obtained the authorization to distribute its profits. After the end of fiscal year 2011, the Argentine Central Bank modified its regulations governing the minimum capital requirements and dividend distribution and, consequently, Banco Galicia was not able to pay dividends. However, for fiscal year 2018 the Bank During 2018, Grupo Financiero Galicia paid cash dividends for Ps.1,200 million for fiscal year 2017, Due to the fact that most of the profits in fiscal year class A and B ordinary shares, with a face value of Ps.1 Due to the provisions recently passed by the Argentine Central Bank within the framework of the COVID-19 pandemic, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020. Pursuant Act No.27,260, Grupo Financiero Galicia neither reimbursed nor withheld any amount for tax purposes on the dividends paid for fiscal year Pursuant For more information on requirements for dividend distribution, see Item 4. “Information on the Company” BancoGalicia During the ordinary and extraordinary shareholders’ meeting held on April 25, 2019, the shareholders approved the payment of a cash dividend, in the amount of Ps.1,500 million, corresponding to the 2018 fiscal year. Taking into consideration the Argentine Central Bank rules regarding the distribution of profits, as explained above, the shareholders’ meeting held on Sudamericana Holding
During the year 2019, Sudamericana held an extraordinary shareholders’ meeting, at which shareholders approved the payment of a cash dividend in the amount of
Internationally, the main economic indicators welcomed 2020 with mixed signals. On the one hand in January of 2020, industrial activity grew, which was partially connected to a deceleration of the decline of the industrial activity in the Eurozone. Optimism regarding the commercial relationship between the United States and China also grew after both countries signed the first phase of a potential commercial agreement. On the other hand, industrial activity growth decelerated in both the United States and China, political tension between the United States and Iran escalated, and major stock indices saw an initial downturn by the end of January from all-time highs as concerns for the COVID-19 virus grew. Meanwhile, the Federal Reserve of the United States maintained cautious monetary policies, amid flight-to-quality strategies on behalf of investors and falling prices among commodities. Since February, global attention has been focused on the spread of COVID-19 (which was initially concentrated in China), but which began spreading globally during this month. Beginning in February, the spread of COVID-19 had already significantly impacted China and exacerbated the economic deceleration in such country and lead to an economic deceleration in the United States. Other economies, however, continued to show improving indicators. Meanwhile, Donald Trump was acquitted from charges of abuse of power and obstruction of justice, clearing his political path for the scheduled presidential elections later in the year, and the U.S. Federal Reserve Bank maintained its cautious stance noticing the potential spread of COVID-19, and investors and commodities upheld their warning tendencies. Also, major stock indices, which had reached new historical maximum levels, started to fell significantly while reflecting increased levels of uncertainty and volatility. Starting in March, COVID-19 spread worldwide. The virus started affecting Europe, but by month-end the United Stated became the global epicenter of infected individuals, while China was able to control the spread within its territory. That same month Saudi Arabia announced the highest oil price cut over the last 30 years in response to the collapse of the OPEC+ agreement. As a result, economic indicators reacted positively to more stability in China but otherwise experience dramatic falls to negative levels in the rest of the world, while stock indices registered generalized declines with historical maximum volatility levels not seen since the 2008 crisis. In addition, investors boosted their flight-to-quality strategies and the price of commodities in general fell, mainly led by an extreme decrease in oil price. The immediate response of policymakers around the globe to the Coronavirus was unprecedented, both in the monetary and tax front. Among others, in March the U.S. Federal Reserve Bank held unscheduled meetings and decided to reduce its rates range by a total of 150 bps to a range from 0.0% to 0.25%. The latter aligned with an also extraordinary quarantine lockdown in some states of the United States, a search to flatten the curve of infected individuals, which would in turn prevent health systems’ saturation. Since then, investors continue to reassess their projections of the potential economic and credit impact of COVID-19 and of the current historically low oil international prices, enabling a partially recover in global assets. Yet, uncertainty and volatility continue to prevail and there is uncertainty regarding the impact on the international economies for 2020. For more information on the impact of COVID-19, see “Forward Looking Statements”— Item 3.D “Risk Factors” — Item 5.“Operating Results-Principal Trends”. In Argentina, the National Government implemented a number of measures aimed at reducing the movement of the population, establishing the social, preventive and mandatory isolation from March 20 to May 10, 2020 (which could be extended if the government considers it necessary), where only individuals working in the rendering/production of essential services and products were allowed to leave their homes. The final significance of the coronavirus outbreak and its impact on both world and local economies is unknown, and the governments might take even stricter measures, which are not predictable at this time. As of the date of issuance of our financial statements, Grupo Financiero Galicia has not experienced significant impacts on its income as a result of this pandemic. Although the Argentine Central Bank established a series of measures in order to minimize physical contact between people, the most relevant being the limitation of customer service at our branches, the operations of our subsidiaries are maintained and we expect them to continue in spite of the difficulties. However, the extent to which the coronavirus will affect the future of Grupo Galicia’s business, and the impact on the income from our operations cannot be reasonably quantified if this situation extends for a longer period of time. The Board of Directors is closely monitoring this situation and taking all the required measures within their reach to preserve human life and our operations. Item 9. The Offer and ListingOur class B shares are listed on the BYMA, MAE and the Córdoba Stock Exchange under the symbol “GGAL”. Our class B shares have started listing on MAE since October 28, 2015. Our ADSs, each representing ten class B shares, are listed on the Nasdaq Capital Market, under the symbol “GGAL”. Our ADSs have been listed on Nasdaq Capital Market since August 2002. Previously, our ADSs had been listed on the Nasdaq National Market since July 24, 2000. The principal and oldest exchange for the Argentine securities market is the BYMA. The BYMA started operating in 1854 and handles the largest proportion of all equity trading in Argentina. Securities listed on the BYMA include corporate equity and debt securities and government securities. Debt securities listed on the BYMA may also be listed on the MAE. The MERVAL, which is affiliated with the BYMA, was founded in 1929 and is the largest stock market in Argentina. The MERVAL is a private entity, whose capital is integrated by shares admitted to public offer regime and was registered as a market by the CNV under N°16. Its capital is composed of 104 outstanding shares and there are Trading on the BYMA is conducted Although companies may list all of their capital stock on the BYMA, in most cases the controlling shareholders retain the majority of a company’s capital stock. This results in only a relatively small percentage of most companies’ stock being available for active trading by the public on the BYMA. Even though individuals have historically constituted the largest group of investors in Argentina’s equity markets, in recent years, banks and insurance companies have shown an interest in these markets. Argentine mutual funds, by contrast, continue to have very low participation in the market. Although 104 companies had equity securities listed on the BYMA as of December 31, The Córdoba Stock Exchange is another important stock market in Argentina. Securities listed on the Córdoba Stock Exchange include both corporate equity and debt securities and government securities. Through an agreement with the BYMA, all the securities listed on the BYMA are authorized to be listed and subsequently traded on the Córdoba Stock Exchange. Thus, many transactions that originate on the Córdoba Stock Exchange relate to companies listed on the BYMA and such trades are subsequently settled in Buenos Aires. The MAE is a self-regulated organization that is supervised by the CNV. MAE is mainly comprised by private banks, either composed by national or foreign capital, national banks, provincial banks, municipal Banks, cooperative Banks, financial companies, exchange companies and agents. Market Regulations The CNV oversees the Argentine securities markets and is responsible for authorizing public offerings of securities and supervising brokers, public companies and mutual In compliance with the provisions of Law No.20,643 and the Decrees No.659/74 and No.2220/80, most debt and equity securities traded on the exchanges and the MAE must, unless otherwise instructed by the shareholders, be deposited Pursuant to the requirements of the Argentine regulations, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the U.S. and other countries. However, the CNV has taken steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for non-compliance.
In order to offer securities to the public in Argentina, an issuer must meet certain requirements of the CNV regarding assets operating history, management and other matters, and only securities for which an application for a public offering has been approved by the CNV may be listed on the corresponding stock exchange. This approval does not imply any kind of certification of assurance related to the merits of the quality of the securities, or the solvency of the issuer. Issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements, as well as various other periodic reports, with the CNV and the corresponding stock exchange. Securities can currently be freely traded on the Argentine markets, however the Argentine government has periodically imposed certain restrictions regarding access by residents and non-residents to the local On
On May 9, 2018, the Argentine Congress passed Law No. 27,440 (Ley de Financiamiento Productivo)with the goal of developing the Argentine domestic capital markets. The draft bill provides for the amendment and update of the Argentine Capital Markets Law, the Mutual Funds Law and the Argentine Negotiable Obligations Law, among others. Such Law No. 27,440 sets forth certain regulations that are intended to provide SMEs with better access to financial instruments and to create an electronic credit invoice for MSMEs that replace the receipts from sales and credit invoices. Also, Law No. 27,440 improves the regulatory framework by introducing the new products for SMEs, such as discounts for access to the financial market and the amendment of certain tax provisions, regulations relating to derivatives and the promotion of a financial inclusion program.
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| December 31, 2018 |
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| December 31, 2019 |
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Shares |
| Number of Shares |
|
| % of Capital Stock |
|
| % of Voting Rights |
|
| Number of Shares |
|
| % of Capital Stock |
|
| % of Voting Rights |
| ||||||
Class A Shares |
|
| 281,221,650 |
|
|
| 20 | % |
|
| 55.11 |
|
|
| 281,221,650 |
|
|
| 19.71 | % |
|
| 55.11 |
|
Class B Shares |
|
| 1,145,542,947 |
|
|
| 80 | % |
|
| 44.89 |
|
|
| 1,145,542,947 |
|
|
| 80.29 | % |
|
| 44.89 |
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Total |
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| 1,426,764,597 |
|
|
| 100 | % |
| 100 |
|
|
| 1,426,764,597 |
|
|
| 100 | % |
| 100 |
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Registration and Transfer
The class B shares are book-entry common shares held through Caja de Valores. Caja de Valores maintains a stock registry for us and only those persons listed in such registry will be recognized as our shareholders. Caja de Valores periodically delivers to us a list of the shareholders as at a certain date.
The class B shares are transferable on the books of Caja de Valores. Caja de Valores records all transfers in our registry. Within ten10 days of any such transfer, Caja de Valores is required to confirm the registration of transfer with the transferor.
Voting Rights
At shareholders’ meetings, each class A share is entitled to five votes and each class B share is entitled to one vote. However, class A shares are entitled to only one vote in certain matters, such as:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange;
a fundamental change in our corporate purpose;
All distinctions between our class A shares and our class B shares will be eliminated upon the occurrence of any of the following change of control events:
- EBA Holding sells 100% of its class A shares;
Limited Liability of Shareholders
Shareholders are not liable for our obligations. Shareholders’ liability is limited to the payment of the shares for which they subscribe. However, shareholders who have a conflict of interest with us and do not abstain from voting may be held liable for damages to us. Also, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or our bylaws may be held liable for damages to us or to third parties, including other shareholders, resulting from such resolutions.
Directors
Our bylaws provide that the Board of Directors shall be composed by at least three and at most nine members, as decided at a general ordinary shareholders’ meeting. To be appointed to our Board of Directors, such person must have been presented as a candidate by shareholders who represent at least 10% of our voting rights, at least three business days before the date the general ordinary shareholders’ meeting is to be held. Our bylaws do not state an age limit over which the directors cannot serve on our board.
At each annual shareholders’ meeting, the term of one-thirdone third of the members of our Board of Directors (no fewer than three directors) expires and their successors are elected to serve for a term of three years. The shareholders’ meeting shall have the power to fix a shorter period (one or two years) for the terms of office of one, several or all the directors. This system of electing directors is intended to help maintain the continuity of the board. Alternate directors replace directors until the following general ordinary shareholders’ meeting is held. Directors may also be replaced by alternate directors if a director will be absent from a board meeting. The Board of Directors is required to meet at least once every month and anytime any one of the directors or syndics so requests.
Our bylaws state that the Board of Directors may decide to appoint an executive committee and/or a delegate director.
Our bylaws do not provide for any arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to in this annual report was selected as a director or member of senior management.
Additionally, pursuant to our bylaws, any borrowing powers on behalf of the Company are granted to our Board of Directors. Our Board of Directors has the power to delegate these borrowing powers to our directors through a power of attorney and currently certain of our directors have powers of attorney to negotiate the terms of and borrow money on behalf of the Company. Furthermore, as stated by our bylaws, the chairman of our Board of Directors is also the legal representative of the Company. Although our bylaws do not expressly address a director’s power to vote on proposals, arrangements or contracts in which the director has a material interest, pursuant to customary Argentine business practice and certain tenants of Argentine corporate law, our directors do not vote on proposals, arrangements or contracts in which the director has a material interest.
Appointment of Directors and Syndics by Cumulative Voting
The Corporations Law provides for the use of cumulative voting to enable minority shareholders to appoint members of the board of directors and syndics. Upon the completion of certain requirements, shareholders are entitled to appoint up to one third of the vacancies to be filled on the board of directors by cumulative voting. Each shareholder voting cumulatively has the number of votes resulting from multiplying the number of votes to which such shareholder would normally be entitled by the number of vacancies to be filled. Such shareholder may apportion his votes or cast all such votes for one or a number of candidates not exceeding one-thirdone third of the vacancies to be filled.
Compensation of Directors
The Corporations Law and the CNV establish rules regarding the compensation of directors. The maximum amount of aggregate compensation that the members of the board of directors may receive, including salaries and other compensation for the performance of permanent technical and administrative services, may not exceed 25.0% of profits of each fiscal year. This maximum amount shall be limited to 5.0% when no dividends are distributed to the shareholders and shall be increased proportionately to the dividend distribution until the 25.0% limit is reached when all profits are distributed.
The Corporations Law provides that aggregate director compensation may exceed the maximum percentage of computable profit in any one year when the company’s profits are non-existent or too small as to allow payment of a reasonable compensation to board members which have been engaged in technical or administrative services to the company, provided that such proposal is described in the notice of the agenda for the ordinary shareholders’ meeting and is approved by a majority of shareholders present at such shareholders’ meeting.
In addition to the above, our bylaws establish that best practices and national and international market standards regarding directors with similar duties and responsibilities shall be considered when determining the compensation of board members.
Syndics
Our bylaws, in accordance with Argentine law, provide for the maintenance of a supervisory committee whose members are three permanent syndics and three alternate syndics. Syndics are elected for a one-year term and may be re-elected. Alternate syndics replace permanent syndics in case of absence. For the appointment of syndics, each of our class A shares and class B shares has only one vote. Fees for syndics are established by the shareholders at the annual ordinary shareholders’ meeting. Their function is to oversee the management of the Company,company, to control the legality of the actions of the board of directors, to attend all board of directors’ meetings, to attend all shareholders’ meetings, to prepare reports for the shareholders on the financial statements with their opinion, and to provide information regarding the Companycompany to shareholders that represent at least 2% of the capital stock. Syndics’ liabilities are joint and several and unlimited for the non-fulfillment of their duties. They are also jointly and severally liable, together with the members of the board of directors, if the proper fulfillment of their duties as syndics would have avoided the damage or the losses caused by the members of the board of directors.
Shareholders’ Meetings
Shareholders’ meetings may be ordinary meetings or extraordinary meetings. An annual ordinary shareholders’ meeting is required to be held in each fiscal year to consider the matters outlined in Article 234 of the Corporations Law, including, among others:
- approval of the financial statements and general performance of the management for the preceding fiscal year;
Extraordinary shareholders’ meetings may be called at any time to discuss matters beyond the competence of the ordinary meeting, including but not limited to amendments to the bylaws, matters related to the liquidation of a company, limitation of the shareholders’ preemptive rights to subscribe new shares, issuance of bonds and debentures, transformation of the corporate form, a merger into another company and spin-offs, early winding-up, change of the Company’scompany’s domicile to outside Argentina, total or partial repayment of capital for losses, and a substantial change in the corporate purpose set forth in the bylaws.
Shareholders’ meetings may be convened by the board of directors or by the syndics. A shareholder or group of shareholders holding at least 5.0% in the aggregate of our capital stock may request the board of directors or the syndics to convene a general shareholders’ meeting to discuss the matters indicated by the shareholder.
Once a meeting has been convened with an agenda, the agenda limits the matters to be decided upon at such meeting and no other matters may be decided upon.
Additionally, our bylaws provide that any shareholder holding at least 5% in aggregate of our capital stock may present, in writing, to the Board of Directors, before February 28 of each year, proposals of items to be included in the agenda at the annual general ordinary shareholders’ meeting. The Board of Directors is not obligated to include such items in the agenda.
Class B shares represented by ADSs will be voted or caused to be voted by the Depositary in accordance with instructions of the holders of such ADSs. In the event instructions are not received from the holder, the Depositary shall give a discretionary proxy for the shares represented by such ADSs to a person designated by us.
Notice of each shareholders’ meeting must be published in the Official Gazette, and in a widely circulated newspaper in the country’s territory, at least twenty days prior to the meeting but not more than forty-five days prior to the date on which the meeting is to be held. The board of directors will determine the appropriate publication of notices outside Argentina in accordance with the requirements of the jurisdictions and exchanges on which our shares are traded. In order to attend a meeting and to be listed on the meeting registry, shareholders must submit evidence of their book-entry share account held at Caja de Valores at least three business days prior to the scheduled meeting date without counting the meeting day.
The quorum for ordinary meetings consists of a majority of stock entitled to vote, and resolutions may be adopted by the affirmative vote of 50% plus one vote (an “absolute majority”) of the votes present whether in person or participating via electronic means of communication. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting may be convened to be held one hour later on the same day as the first meeting had been called for, provided that it is an ordinary shareholders’ meeting, or within 30 days of the date for which the first ordinary meeting was called.
The quorum for extraordinary shareholders’ meetings consists of 60% of stock entitled to vote, and resolutions may be adopted by an absolute majority of the votes present. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting has to be convened to be held within 30 days of the date for which the first extraordinary meeting was called, and the notice must be published for three days, at least eight days before the date of the second meeting. Some special matters require a favorable vote of the majority of all the stock holding voting rights, the class A shares being granted the right to only one vote each. The special matters are described in “—“—Voting Rights” above.
Dividends
Dividends may be lawfully paid and declared only out of our retained earnings representing the profit realized and liquid on our operations and investments reflected in our annual financial statements, as approved at our annual general shareholders’ meeting. No profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per-share basis.
As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired. The legal reserve is not available for distribution to shareholders.
Our Board of Directors submits our financial statements for the previous fiscal year, together with reports prepared by our supervisory committee, to our shareholders for approval at the general ordinary shareholders’ meeting. The shareholders, upon approving the financial statements, determine the allocation of our net income.
Our Board of Directors is allowed by law and by our bylaws to decide to pay anticipated dividends on the basis of a balance sheet especially prepared for purposes of paying such dividends.
Under BYMA regulations, cash dividends must be paid to shareholders within ten10 days of the shareholders’ meeting approving said dividend. Payment of dividends in shares requires authorization from the CNV, the BYMA and the Córdoba Stock Exchange, whose authorizations must be requested within ten10 business days after the shareholders’ meeting approving the dividend. We must make a distribution of the shares available to shareholders not later than three months after receiving authorization to do so from the CNV.
Shareholders may no longer claim the payment of dividends from us after three years have elapsed from the date on which the relevant dividends were made available to such shareholders.
Capital Increases and Reductions
We may increase our capital upon resolution of the general ordinary shareholders’ meeting. All capital increases must be reported to the CNV, published in the Official Gazette and registered with the Public Registry of Commerce. Capital reductions may be voluntary or mandatory. A voluntary reduction of capital must be approved by an extraordinary shareholders’ meeting after the corresponding authorization by the BYMA, the Córdoba Stock Exchange and the CNV and may take place only after notice of such reduction has been published and creditors have been given an opportunity to obtain payment or guarantees for their claims or attachment. A reduction of capital is mandatory when losses have exceeded reserves and more than 50% of the share capital of the Company.company.
Preemptive Rights
Under Argentine law, it is mandatory that a shareholder of ordinary shares of any given class have preemptive rights, proportional to the number of shares he or she owns, to subscribe for shares of capital stock of the same class or of any other class if the new subscription offer does not include all classes of shares. Shareholders may only decide to suspend or limit preemptive rights by supermajority at an extraordinary shareholders’ meeting and only in exceptional cases. Shareholders may waive their preemptive rights only on a case-by-case basis.
In the event of an increase in our capital, holders of class A shares and class B shares have a preemptive right to subscribe for any issue of class B shares in an amount sufficient to maintain the proportion of capital then
held by them. Holders of class A shares are entitled to subscribe for class B shares because no further class A shares carrying five votes each are allowed to be issued in the future. Under Argentine law, companies are prohibited from issuing stock with multiple voting rights after they have been authorized to make a public offering of securities.
Preemptive rights are exercisable following the last publication of the notification to shareholders of the opportunity to exercise preemptive rights in the Official Gazette and an Argentine newspaper of wide circulation for a period of 30 days, provided that such period may be reduced to no less than ten10 days if so approved by an extraordinary shareholders’ meeting.
Shareholders who have exercised their preemptive rights and indicated their intention to exercise additional preemptive rights are entitled to additional preemptive rights (“accretion rights”), on a pro rata basis, with respect to any unsubscribed shares, in accordance with the terms of the Corporations Law. Class B shares not subscribed for by shareholders through the exercise of their preemptive or accretion rights may be offered to third parties.
Holders of ADSs may be restricted in their ability to exercise preemptive rights if a registration statement relating to such rights has not been filed or is not effective or if an exemption from registration is not available.
Appraisal Rights
Whenever our shareholders approve:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange,
any shareholder that voted against such action or did not attend the relevant meeting may exercise its right to have its shares canceled in exchange for the book value of its shares, determined on the basis of our latest balance sheet prepared in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within the periods set forth below.
There is, however, doubt as to whether holders of ADSs, will be able to exercise appraisal rights with respect to class B shares represented by ADSs.
Appraisal rights must be exercised within five days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolutions, or within 15 days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of a merger or spin-off involving an entity authorized to make a public offering of its shares, appraisal rights may not be exercised if the shares to be received as a result of such transaction are listed on any stock exchange. Appraisal rights are extinguished if the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 75 days of the meeting at which the resolution was adopted.
Payment of the appraisal rights must be made within one year from the date of the shareholders’ meeting at which the resolution was adopted, except if the resolution was to delist our capital stock, in which case the payment period is reduced to 60 days from the date of the related resolution.
Preferred Stock
According to the Corporations Law and our bylaws, an ordinary shareholders’ meeting may approve the issuance of preferred stock. Such preferred stock may have a fixed dividend, cumulative or not cumulative, with or without additional participation in our profits, as decided by shareholders at a shareholders’ meeting when determining the conditions of the issuance. They may also have other preferences, such as a preference in the event of our liquidation.
The holders of preferred stock shall not be entitled to voting rights. Notwithstanding the foregoing, in the event that no dividends are paid to such holders for their preferred stock, and for as long as such dividends are not paid, the holders of preferred stock shall be entitled to voting rights. Holders of preferred stock are also entitled to vote on certain special matters, such as the transformation of the corporate form, a merger into another company and
spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), early winding-up, a change of our domicile to outside Argentina, total or partial repayment of capital for losses and a substantial change in the corporate purpose set forth in our bylaws or in the event our preferred stock is traded on stock exchanges and such trading is suspended or terminated.
Conflicts of Interest
As a protection to minority shareholders, under the Corporations Law, a shareholder is required to abstain from voting on any resolution in which its direct or indirect interests conflict with that of or are different than ours. In the event such shareholder votes on such resolution, and such resolution would not have been approved without such shareholders’ vote, the resolution may be declared void by a court and such shareholder may be liable for damages to the Companycompany as well as to any third party, including other shareholders.
Redemption or Repurchase
According to the Capital Markets Law,, a stock corporation may acquire the shares issued by it, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and those set forth by the CNV. The above-mentioned conditions are: (i)(a) the shares to be acquired shall be fully paid up; (ii)(b) there shall be a resolution signed by the board of directors to such effect; (iii)(c) the acquisition shall be made out of net profits or free or voluntary reserves; and (iv)(d) the total amount of shares acquired by the Company,company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower percentage determined by the CNV. The shares acquired by the Companycompany in excess of such limit shall be disposed of within the term of 90 days after the date of the acquisition originating such excess.
The shares acquired by the Companycompany shall be disposed of by the Companycompany within the maximum term of three years counted as from the date of acquisition thereof. Upon disposing of the shares, the Companycompany shall make a preemptive offer thereof. Such an offer will not be obligatory if the shares are used in connection with a compensation plan or program for the Company’scompany’s employees or if the shares are distributed among all shareholders pro rata their shareholdings. If shareholders do not exercise, in whole or in part, their preemptive rights, the sale shall be made at a stock exchange.
Liquidation
Upon our liquidation, one or more liquidators may be appointed to wind up our affairs. If no such appointment is made, our Board of Directors will act as liquidator. All outstanding common shares will be entitled to participate equally in any distribution upon liquidation. In the event of liquidation, in Argentina and in any other country, our assets shall first be applied to satisfy our debts and liabilities.
Other Provisions
Our bylaws are governed by Argentine law and the ownership of any kind of our shares represents acceptance of our bylaws and submission to the exclusive jurisdiction of the ordinary commercial courts of Buenos Aires for any claim or dispute related to us, our shareholders, directors and members of the supervisory committee.
C. Material Contracts
Bonds
During the 2016 fiscal year, Banco Galicia issued subordinated Class II notes due 2026 in an aggregate principal amount of US$250 million. The proceeds of this issuance were used to redeem the Bank’s outstanding subordinated notes due 2019. During the 2017 fiscal year Banco Galicia issued Class III notes in an aggregate principal amount of US$150.5Ps.150 million due 2020 and2020. Class IV notes in an aggregate principal amount of Ps.2,000 million due 2020. During the 2018 fiscal year, Banco Galicia issued Class V Series I notes due 2020 and Series II notes due 2020 in an aggregate principal amount of Ps.4,209 million and Ps.2,032 million, respectively.
The pricing supplements for the issuances described above set forth certain covenants Banco Galicia must comply with for the benefit of the holders of such notes, which include, among others, restrictions on mergers, acquisitions or dispositions (subject to certain exceptions) and restrictions on the incurrence of additional debt.
For additional detail regarding the notes issued during fiscal year 2018, see Note 28 to our financial statements.
Loans
In May 2016, the IFC granted Banco Galicia a credit line in an amount of up to US$130 million. As of May 2018, Banco Galicia has drawn all of the commited amount and the loan was amortized for Ps.8US$37 million.
On March 23, 2018, Banco Galicia announced the issuance of a green bond to raise US$.100100 million in order to expand its loan program for environmental efficiency projects. This is the first green bond issued by a private financial institution in Argentina, marking Banco Galicia’s commitment to finance projects with a positive impact on the environment.Theenvironment. The bonds were underwritten on June 21, 2018 by the IFC. To date, loans for US$1053 million were granted.
D. Exchange Controls
For a description of the exchange controls that would affect us or the holders of our securities, see Item 4. “Information on the Company—Company—Government Regulation—Regulation—Foreign Exchange Market”.
E. Taxation
The following is a summary of the principal Argentine and U.S. federal income tax consequences arising from the acquisition, ownership and disposition of our class B shares and ADSs. This summary is based on Argentine and U.S. federal tax laws, as well as the regulations in effect as of the date of this annual report. Further, this summary is subject to any subsequent changes in laws and regulations that may come into effect after this date. Any change could apply retroactively and could affect the continued validity of this summary. This summary does not constitute legal advice or a legal opinion with respect to the transactions that the holders of our class B shares or ADSs may enter into. This summary is only a brief description of certain (but not all) aspects of the Argentine and U.S. federal income tax systems, as they relate to the acquisition, ownership and disposition of our class B shares and ADSs. In addition, although the Company believes that the following summary is a reasonable interpretation of the current taxation rules and regulations, Grupo Galicia cannot assure that the applicable authorities or tribunals will agree with all, or any of the tax consequences outlined below. Currently, there is no tax treaty between the United States and Argentina.
ArgentineArgentine Taxes
Law No.26,893, enacted on September 12, 2013 and published in the Official Gazette on September 23, 2013, introduced changes to Income Tax Law No.20,628, including the derogation of Section 78 of Decree No.2284/1991; which provides that foreign holders with no permanent establishment in Argentina are exempt from paying income tax on the capital gains arising from the sale or other disposition of shares or ADSs.
Decree No.2334/2013 has regulated Law No.26,893. This decree provides that changes introduced by Law No.26,893 are effective from the date of publication of such law in the Official Gazette and apply to taxable events carried out from such date onwards.
Law No.27,430 enacted on December 27, 2017 and published in the Official Gazette on December 29, 2017, and Law No. 27,541 published in the Official Gazette on December 23,2019 introduced several changes to Income Tax Law No.20,628. The principal change resulting from such law is a corporate income tax rate reduction in two phases. For fiscal years beginning on or after January 1, 2018 until December 31, 2019,2021, the government has reduced the corporate income tax rate from 35% to 30%. After December 31, 2019,2021, the corporate tax rate will be further reduced to 25%.
This reform includes additional changes, such as the confirmation that ADRs and ADSs generate Argentine-sourced income. Non- residents, however, will be exempted from the current 15% capital gains tax on the sale of ADRs or ADSs if they reside in a jurisdiction having an exchange of information agreement with Argentina or if these invested funds come from a cooperating jurisdiction.
Taxation of Dividends
As from the effectiveness of Law No. 27,430 and Law No. 27,541, on December 27, 2017 and December 23, 2019 dividends and distributions (other than stock dividends) made by local entities to individuals, undivided estates, and foreign entities are subject to a withholding tax at a rate of 7% (while the corporate income tax is 30%) and at a rate of 13% beginning on January 1, 2020.2022. Thus, the combined rate on dividend/profit distribution would remain around the current 35% rate, as Argentina has not levied a withholding tax on dividends or branch profits, since it eliminated the same in 2016.
Decree No.1170/2018 provides for further guidance on Law No.27,430. This decree provides that dividend payments on ADSs or ordinary shares, whether in cash, property, or stock, would be subject to Argentine withholding tax and the exemption referred to in the last paragraph of “—Argentine“Argentine Taxes” above shall not apply.
Equalization Tax
There is a specific rule under which a 35% tax (“equalization tax”) will be imposed on certain dividends approved by shareholders. The equalization tax will be applied only to the extent that distributions of dividends exceed the taxable income of the company increased by non-taxable dividends received by the distributing company in prior years and reduced by Argentine income tax paid by the distributing company.
The equalization tax will be imposed as a withholding tax on the shareholder receiving the dividend. Dividend distributions made in kind (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends are not subject to Argentine taxation.
In addition, the foregoing tax reforms abolished the equalization tax for profits generated beginning January 1, 2018. Such equalization tax is a withholding tax levied at a rate of 35% on dividend distributions in excess of tax earnings that would remain applicable for the stock of non-distributed earnings and profits as of December 31, 2017.
Taxation of Capital Gains
In accordance with Law No.27,430 capital gains derived by non-resident individuals or foreign companies from the sale, exchange or other disposition of ADSs or class B shares are subject to the following regulations:
Non-residents continue to be exempted from tax on capital gains arising from the sale of shares in publicly- tradedpublicly-traded companies, if the shares are traded on the BASE. In accordance with Law No.27,541 the exemption will also apply if the securities are traded in stock or securities markets authorized by the (CNV). The benefits will be applied to foreign beneficiaries as long as they do not reside in non-cooperative jurisdictions or the invested funds do not come from a non-cooperative jurisdiction.
Transfer of Argentine securities that occurred after September 23, 2013 triggered taxation on a retroactive basis, as the suspension of the rule that called for the tax was lifted. The tax will not apply to sales made through stock exchanges if the tax had not been withheld.
Indirect transfers of Argentine assets (including shares) will be taxable, if (i) the value of the Argentine assets exceed 30% of the transaction’s overall value; and (ii) the equity interest sold (in the foreign entity) exceeds 10%. The tax will also be due if any of these thresholds were met during the 12 month period prior to the sale. The indirect transfer of Argentine assets will only be subject to tax if these assets are acquired after January 1, 2018. Transactions involving indirect transfers of Argentine assets within the same economic group would also not trigger taxation, provided the requirements set by regulations have been met. Decree No.279/2018No.862/2019 and General Resolution No.4227/2018, provide that the seller, and not the buyer, is the party responsible for withholding the tax. The regulation has established a new mechanism regulating how non-resident sellers should pay the tax on the capital gain for transactions that have taken place on or after January 1, 2018. In summary, the non-resident seller should pay the tax directly through an international wire transfer unless there is a local withholding agent (i.e., local buyer or local custodial institution) involved in the payment.
Transfer Taxes: no Argentine transfer taxes are applicable on the sale or transfer of ADSs or class B shares.
Tax on Minimum Notional Income
The tax reform in force since 1999 reinstituted a tax on assets of Argentine companies. This tax is similar to the asset tax that was previously in effect in Argentina from 1990 to 1995. It applies at a general rate of 1% on a broadly defined asset base encompassing most of the taxpayer’s gross assets at the end of any fiscal year ending after December 31, 1998.
Specifically, the Law establishes that banks, other financial institutions and insurance companies will consider a taxable base equal to 20% of the value of taxable assets.
Income tax and asset tax payments for a tax year will reduce a company’s tax liability on assets for that tax year; and can be carried forward to be applied against the company’s income tax liability in any of the next 10 tax years.
According to Law No.27,260, this tax will be repealed as of 2019.
Personal Assets Tax
Individuals domiciled and undivided estates located in Argentina or abroad will be subject to an annual tax in respect of assets located in Argentina and abroad. Applicable wealth tax rates and minimum non-taxable asset values for the general taxpayer regime are replaced with effect as of fiscal year 2019 by Law No.27,480.No.27,480 and Law No. 27.541. The following is the new scheme:
Fiscal year |
| Tax rate |
| Exempt Minimum |
2019 onwards |
| * |
| Ps.2,000,000 |
*Taxe Rate (In pesos except percentages) | *Taxe Rate (In pesos except percentages) |
| *Taxe Rate (In pesos except percentages) |
| ||||||||||||||||||||||||||||||||
Total Value of Assets | Total Value of Assets |
|
| Flat Tax |
|
| More % |
|
| Taxation over the excess of the amount |
| Total Value of Assets |
|
| Flat Tax |
|
| More % |
|
| Taxation over the excess of the amount |
| ||||||||||||||
Over Ps. | Over Ps. |
|
| Up to the amount |
|
|
|
|
|
|
|
|
|
|
|
|
| Over Ps. |
|
| Up to the amount |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| — |
|
|
| 3,000,000 |
|
|
| — |
|
|
| 0.25 |
|
|
| — |
| — |
|
|
| 3,000,000 |
|
|
| — |
|
|
| 0.25 |
|
|
| — |
|
| 3,000,000 |
|
|
| 18,000,000 |
|
|
| 7,500 |
|
|
| 0.50 |
|
|
| 3,000,000 |
| 3,000,001 |
|
|
| 6,500,000 |
|
|
| 15,000 |
|
|
| 0.75 |
|
|
| 3,000,000 |
|
| 18,000,000 |
|
| Onward |
|
|
| 82,500 |
|
|
| 0.75 |
|
|
| 18,000,000 |
| 6,500,001 |
|
|
| 18,000,000 |
|
|
| 41,250 |
|
|
| 1.00 |
|
|
| 6,500,000 |
| |
| 18,000,000 |
|
| Onward |
|
|
| 156,250 |
|
|
| 1.25 |
|
|
| 18,000,000 |
| |||||||||||||||||||
Individuals domiciled abroad will pay the tax only in respect of the assets they hold in Argentina. In the case of individuals domiciled abroad, the tax will be paid by the individuals or entities domiciled in Argentina which, as of December 31 of each year, hold the joint ownership, possession, use, enjoyment, deposit, safekeeping, custody, administration or tenure of the assets located in Argentina and subject to the tax belonging to the individuals domiciled abroad. When the direct ownership of notes, government securities and certain other investments, except shares issued by companies ruled by the Corporations Law, are part of companies domiciled abroad in countries that do not enforce registration systems for private securities (with the exception of insurance companies, open-end investment funds, pension funds or banks and financial entities with head offices in countries that have adopted the international banking supervision standards laid down by the Basel Committee on Banking Supervision) or that pursuant to their bylaws, charter, documents or the applicable regulatory framework, have as their principal activity investing outside of the jurisdiction of their organization or domicile, or are generally restricted from doing business in their country of incorporation, it will be assumed, without admission of any proof to the contrary, that these assets belong ultimately to individuals and therefore the system for paying the tax for such individuals domiciled abroad applies to them.
An exception pursuant to a tax reform was published in the Official Gazette as Law No.25,585, which went into effect on December 31, 2002. This tax reform introduced a mechanism to collect the personal assets tax on shares issued by companies ruled by the Corporations Law, which ownership belongs to individuals domiciled in Argentina or abroad, and companies or entities domiciled abroad. In the case of companies or entities domiciled abroad, it will be assumed, without admitting any proof to the contrary, that these shares ultimately belong to individuals domiciled abroad.
The tax was assessed and paid by those companies ruled by the Corporations Law at the rate of 0.5% on the value of the shares or equity interest. Since fiscal year 2016, after amendments introduced by Law No.27,260, the tax rate applicable to participations in domestic entities has been reduced from 0.50% to 0.25%. The valuation of the shares, whether listed or not, must be made according to their proportional equity value. These companies may eventually seek reimbursement from the direct owner of the shares, in respect of any amounts paid to the Argentine tax authorities as a personal asset tax. Grupo Financiero Galicia has sought reimbursement for the amount paid corresponding to December 31, 2002. The Board of Directors submitted the decision on how to proceed with respect to fiscal year 2003 to the annual shareholders’ meeting held on April 22, 2004. At that meeting, our shareholders voted to suspend all claims on our shareholders for any amount unpaid for fiscal year 2002 and to have the Company absorb the amounts due for fiscal year 2003 onward, when not withheld from dividends.
Pursuant to Law No.27,260, Argentine companies that have properly fulfilled their tax obligations during the two prior fiscal years to the 2016 fiscal year, and which comply with certain other requirements, may qualify for an exemption from personal asset taxes for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017. Grupo Financiero Galicia filed this request. Notwithstanding, we cannot assure that in the future, Grupo Financiero Galicia can fulfill these requirements and maintain such exemption.
Other Taxes
There are no Argentine federal inheritance, succession or gift taxes applicable to the ownership, transfer or disposition of ADSs or class B shares. There are no Argentine stamps, issue, registration or similar taxes or duties payable by holders of ADSs or class B shares.
Tax measures related to Covid-19
Tax, Trade & Regulatory
General Tax Measures
On March 19, 2020, the tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the AFIP. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays days between March 19 and April 26 for procedural purposes.
Indirect Tax (VAT, Customs)
On March 19, 2020 the AFIP approved a reduction in the tax rate from 0.6% to 0.25%. Additionally, AFIP also approved a reduction from 1.2% to 0.5% for tax financial transactions on deposits and withdrawals from Argentine bank accounts for employers in the health care industry (i.e., diagnosis services, health insurance and pre-paid medicine companies and hospitals, among others) during a 90-day period.
Other taxes
On March 23, 2020, the deadline for e-filings broadly was expanded until June 30,2020. The tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the Federal Tax Administration. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays the days between March 19 and April 26 for procedural purposes.
Tax reporting
On March 31, 2020, through General Resolution 4689/2020, transfer pricing filings (including complementary annual study) corresponding to fiscal years ended from December 31, 2018 to September 30, 2019, both inclusive, was postponed from April 20-24 to May 2020 18-22 (the exact due date depending on the Tax ID's last digit).
Workforce: Individual and Employment Taxes
The due date for the voluntary repatriation of funds (in order not to be subject to an incremental tax rate on assets located abroad) was postponed from March 31 to April 30, 2020. Also, the due date for the payment established for those not adhering to the repatriation of funds was postponed from April 1 to May 6, 2020.
On March 25, 2020, the Labor, Employment & Social Security Ministry issued Resolution No. 219, which established that employees who could not work from home during the lockdown would be relieved from paying the employer and employee contributions due to the Integrated Social Security System. The Resolution also established that employers of new hires will benefit from a 95% reduction on the contributions they have to make to the Integrated Social Security System.
On March 31, 2020, the Labor, Employment & Social Security Ministry amended Resolution No. 219, and issued Resolution No. 279, removing any relief provided from social security contributions for those employees who cannot perform their duties from their homes during the lockdown.
Deposit and Withdrawal of Class B Shares in Exchange for ADSs
No Argentine tax is imposed on the deposit or withdrawal of class B shares in exchange for ADSs.
United States Federal Income Taxes
The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of class B shares and ADSs, as their terms are set forth in the documents or the forms thereof, relating to such securities as in existence on the date hereof, but it does not purport to address all the tax considerations that may be relevant to a decision to purchase, own or dispose of class B shares or ADSs. This summary assumes that the class B shares or ADSs will be held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), and does not address tax consequences to all categories of investors, some of which (such as dealers or traders in securities or currencies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt entities, banks, insurance companies, persons that received class B shares or ADSs as compensation for the performance of services, persons owning (or deemed to own for U.S. federal income tax purposes) 10% or more (by voting power or value) of our shares, U.S. Holders (as defined below) whose functional currency is not the Dollar and persons that hold the class B shares or ADSs as part of a position in a “straddle” or as part of a “hedging” or “conversion” transaction for U.S. federal income tax purposes) may be subject to special tax rules. Moreover, this summary does not address the U.S. federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of class B shares or ADSs.
This summary (i) is based on the Code, existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case, as in effect and available on the date hereof, and (ii) is based in part on representations of the Depository and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of class B shares or ADSs that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if such trust validly elects to be treated as a United States person for U.S. federal income tax purposes or if (a) a United States court can exercise primary supervision over its administration and (b) one or more United States persons have the authority to control all of the substantial decisions of such trust. A “Non-U.S. Holder” is a beneficial owner of class B shares or ADSs that is neither a U.S. Holder nor a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds class B shares or ADSs, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
Each prospective purchaser should consult its own tax advisor with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of class B shares or ADSs.
Ownership of ADSs in General
In general, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the class B shares represented by such ADSs. For purposes of the discussion below, we assume that intermediaries in the chain of ownership between the holder of an ADS and Grupo Financiero Galicia are acting consistently with the claiming of U.S. foreign tax credits by U.S. Holders.
Taxation of Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, for U.S. federal income tax purposes, the gross amount of distributions by Grupo Financiero Galicia of cash or property (other than certain distributions, if any, of class B shares or ADSs distributed pro rata to all shareholders of Grupo Financiero Galicia, including holders of ADSs) made with respect to the class B shares or ADSs before reduction for any Argentine taxes withheld therefrom, will constitute dividends to the extent that such distributions are paid out of Grupo Financiero Galicia’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, and will be included in the gross income of a U.S. Holder as dividend income. Subject to the discussion below under “Passive Foreign Investment Company Considerations”, non-corporate U.S. Holders generally will be taxed on such distributions on ADSs (or class B shares that are readily tradable on an established securities market in the United States at the time of such distribution) at the lower rates applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year). Non-corporate U.S. Holders that (i) do not meet a minimum holding period requirement with respect to such ADSs (or class B shares), (ii) elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4)(B) of the Code or (iii) receive dividends with respect to which they are obligated to make related payments for positions in substantially similar or related property will not be eligible for the reduced rates of taxation. In addition, dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Code.
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, if distributions with respect to the class B shares or ADSs exceed Grupo Financiero Galicia’s current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, the excess will be treated first as a tax-free return of capital to the extent of such U.S. Holder’s adjusted tax basis in the class B shares or ADSs. Any amount in excess of such adjusted basis will be treated as capital gain from the sale or exchange of such class B shares or ADSs. Grupo Financiero Galicia does not maintain calculations of its earnings and profits under U.S. federal income tax principles.
Dividends paid in Pesos will be included in the gross income of a U.S. Holder in an amount equal to the Dollar value of the Pesos on the date of receipt, which, in the case of ADSs, is the date they are received by the Depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. Any gains or losses resulting from the conversion of Pesos between the time of the receipt of dividends paid in Pesos and the time the Pesos are converted into Dollars will be treated as ordinary income or loss, as the case may be, of a U.S. Holder. Dividends received by a U.S. Holder with respect to the class B shares or ADSs will be treated as foreign source income, which may be relevant in calculating such holder’s foreign tax credit limitation. Subject to certain conditions and limitations, Argentine tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific categories of income. For this purpose, dividend income with respect to class B shares or ADSs should generally constitute “passive category income”, or in the case of certain U.S. Holders, “general category income”. The rules governing the foreign tax credit are complex. Prospective holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Subject to the discussion below under “Backup Withholding and Information Reporting”, a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received on class B shares or ADSs, unless such income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States.
Taxation of Capital Gains
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” U.S. Holders will recognize capital gain or loss for U.S. federal income tax purposes upon a sale or exchange of class B shares or ADSs in an amount equal to the difference between such U.S. Holder’s adjusted tax basis in the class B shares or ADSs and the amount realized on their disposition. In the case of a non-corporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to such gain will be lower than the maximum marginal U.S. federal income tax rate for ordinary income (other than certain dividends) if the U.S. Holder’s holding period in the class B shares or ADSs exceeds one year at the time of the sale or exchange. Gain or loss, if any, recognized by a
U.S. Holder generally will be treated as United States source income or loss for U.S. foreign tax credit purposes. Consequently, a U.S. Holder may not be able to use the foreign tax credit arising from any Argentine tax imposed on the disposition of class B shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Certain limitations apply to the deductibility of capital losses for U.S. federal income tax purposes.
A U.S. Holder’s initial tax basis in the class B shares or ADSs is the Dollar value of the Pesos denominated purchase price determined on the date of purchase. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the Dollar value of the cost of such class B shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
With respect to the sale or exchange of class B shares or ADSs, the amount realized generally will be the Dollar value of the payment received, before reduction for any Argentine taxes withheld therefrom, determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition in the case of an accrual basis U.S. Holder. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis taxpayer (or, if it elects, an accrual basis taxpayer) will determine the Dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
Subject to the discussion below under “Backup Withholding and Information Reporting,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale or exchange of class B shares or ADSs unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale or exchange and certain other conditions are met.
Passive Foreign Investment Company Considerations
A non-U.S. corporation will be classified as a “passive foreign investment company”, or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (1) at least 75 percent of its gross income is “passive income” or (2) at least 50 percent of the average value of its gross assets is attributable to assets that produce “passive income” or is held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions, other than certain income derived in the active conduct of a banking business.
The application of the PFIC rules is unclear both generally and specifically with respect to banks. The United States Internal Revenue Service (“IRS”) has issued a notice and certain proposed Treasury Regulations that exclude from passive income any income derived in the active conduct of a banking business by a qualifying foreign
bank (the “Active Bank Exception”). However, the IRS notice and proposed Treasury Regulations are inconsistent in certain respects. Because final Treasury Regulations have not been issued, there can be no assurance that Grupo Financiero Galicia or its subsidiaries will satisfy the Active Bank Exception for any given taxable year.
Based on certain estimates of its gross income and gross assets (which estimates are inherently imprecise), the nature of its business, and reliance on the Active Bank Exception, Grupo Financiero Galicia believes that it should not be classified as a PFIC for the taxable year ended December 31, 2018.2019. Grupo Financiero Galicia’s status in future years will depend on its assets and activities in those years. Grupo Financiero Galicia has no reason to believe that its assets or activities will change in a manner that would cause it to be classified as a PFIC, but there can be no assurance that Grupo Financiero Galicia will not be considered a PFIC for any taxable year. If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, the class B shares or ADSs.
If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs could make a variety of elections that may alleviate certain of the adverse tax consequences referred to above, and one of these elections may be made retroactively. However, it is expected that the conditions necessary for making certain of such
elections will not apply in the case of the class B shares or ADSs. U.S. Holders should consult their own tax advisors regarding the tax consequences that would arise if Grupo Financiero Galicia were treated as a PFIC.
Reporting Requirements
Non-corporate U.S. Holders, including individuals, that hold “specified foreign financial assets”, as defined in the Treasury Regulations (which may include class B shares or ADSs), other than in an account at a U.S. financial institution or the U.S. branch of a non-U.S. financial institution, are required to report certain information relating to such assets. U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this and any other reporting requirements on their ownership and disposition of class B shares or ADSs. Failure to comply with applicable reporting requirements could result in the imposition of substantial penalties.
Backup Withholding and Information Reporting
United States backup withholding tax and information reporting requirements generally apply to certain payments to certain holders of stock.
Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, class B shares or ADSs made within the United States, or by a U.S. payor or U.S. middleman, to a holder of class B shares or ADSs (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification).
Payments of dividends on, or proceeds from the sale or redemption of, class B shares or ADSs within the United States, or by a U.S. payor or U.S. middleman, to a holder (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification) will be subject to backup withholding if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is currently 24%.
FATCA
Beginning on the date that is two years after the date on which final Treasury Regulations are published defining the term “foreign passthru payment”, Grupo Financiero Galicia may be required, pursuant to Sections 1471 through 1474 of the Code, and the Treasury Regulations promulgated thereunder (often referred to as the “Foreign Account Tax Compliance Act” or “FATCA”) to withhold U.S. tax at a 30% rate on all or a portion of any distribution on class B shares or ADSs which is treated as a “foreign passthru payment”.
Assuming that distributions from Grupo Financiero Galicia constitute “foreign passthru payments” and that Grupo Financiero Galicia enters into an agreement with the IRS to report the information required by FATCA or, if
Argentina has entered in an intergovernmental agreement with the United States (an “IGA”),that Grupo Financiero Galicia complies with such IGA, then an investor considered to have a “U.S. account” maintained by Grupo Financiero Galicia may be required to provide the information described below or be subject to U.S. withholding tax on any distribution on class B shares or ADSs that is treated as a “foreign passthru payment”. Investors in class B shares or ADSs that are financial institutions, or financial institutions that receive payments on behalf of other persons, and that have not entered into an agreement with the IRS (or otherwise established an exemption from FATCA, including pursuant to an applicable IGA) would also be subject to this U.S. withholding tax.
FATCA is particularly complex and its application to Grupo Financiero Galicia is uncertain at this time. Each holder of class B shares or ADSs should consult its own tax advisor to obtain a more detailed explanation of FATCA and to learn how it might affect such holder under its particular circumstances.
Medicare Tax on Investment Income
Certain U.S. Holders that are individuals, estates or trusts are required to pay a 3.8% tax on the lesser of (i) the U.S. Holder’s “net investment income” for the taxable year and (ii) the excess of the U.S. Holder’s modified
adjusted gross income for the taxable year over a certain threshold. Net investment income includes, among other things, dividends and capital gains from the sale or other disposition of class B shares or ADSs.
THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CLASS B SHARES OR ADSs. PROSPECTIVE HOLDERS SHOULD CONSULT AN INDEPENDENT TAX ADVISOR CONCERNING THE TAX CONSEQUENCES IN THEIR PARTICULAR CIRCUMSTANCES.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and its exhibits, may be inspected and printed or copied for a fee at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These materials are also available on the SEC’s website at http://www.sec.gov. Material submitted by us can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1506.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
General
Market risks faced by us are the risks arising from the fluctuations in interest rates and in foreign exchange rates. Our market risk arises mainly from the operations of Banco Galicia in its capacity as a financial intermediary. Our subsidiaries and other entities in which we have a minority equity interest are also subject to market risk. However, the amount of these risks is not significant, and they are not discussed below. Policies regarding these risks are applied at the level of our operating subsidiaries.
In compliance with the Argentine Central Bank’s regulations, based on the best practices and international standards, Banco Galicia has a Risk Management Division responsible for identifying, monitoring and actively and integrally managing the different risks Banco Galicia and its subsidiaries are exposed to (credit, financial and operational risks). The aim of the Division is to guarantee Banco Galicia’s board of directors that it is fully aware of the risks Banco Galicia is exposed to. It also creates and proposes the policies and procedures necessary to mitigate and control such risks. The Risk Management Committee, made-up of foursix members of the board of directors of Banco Galicia, the Chief Executive Officer and the managers of the Risk Management Division, the Planning Division and Internal Audit, is the highest corporate body to which Banco Galicia’s board of directors delegates integral risk management and the executive responsibility to define and enforce risk management policies, procedures and controls. This Committee is also responsible for setting specific limits for the exposure to each risk and approving, when applicable, temporary excesses over such limits as well as being informed of each risk position and compliance with policies.
See Item 6. “Directors, Senior Management and Employees”—“Functions of the Board of Directors of Banco Galicia”. Liquidity management is discussed in Item 5 “Operating and Financial Review and Prospects”─.B.-.B.“Liquidity and Capital Resources”. Credit risk management is discussed in Item 4. “Information“Information on the Company”—B.“Business Overview”─- “Selected Statistical Information”—“Credit Review Process” and other sections under Item 4. “Information on the Company”—B.”Business Overview”─- “Selected Statistical Information” describing Grupo Galicia’s financial instruments portfolio and financial instruments loss experience.
The following sections contain information on Banco Galicia’s sensitivity to interest-rate risk and exchange-rate risk that constitute forward-lookingforward looking statements that involve risks and uncertainties. Actual results could differ from those projected in the forward-looking statements.
Interest Rate Risk
A distinctive and natural characteristic of financial brokerage is the existence of interest-earning assets and interest-bearing liabilities with different maturities (or different rate repricing periods) and interest rates that can be
fixed or variable. This situation leads to a gap or mismatch that arises from the balance sheet and measures the imbalance between fixed- and variable-rate assets and liabilities, and results in the so-called interest-rate risk or balance sheet structural risk. A commercial bank can face the interest rate risk on both sides of its balance sheet: with regard to the income generated by assets (loans and securities) and the expenses related to the interest-bearing liabilities (deposits and other sources of funds).
The policy currently in force defines this gap as the risk that the financial margin and the economic value of equity may vary as a consequence of fluctuations in market interest rates. The magnitude of such variation is associated with the sensitivity to interest rates of the structure of the Bank’s assets and liabilities.
Aimed at managing and limiting the sensitivity of Banco Galicia's economic value and results with respect to variations in the interest rate inherent to the structure of certain assets and liabilities, the following caps have been determined:
- Limit on the gross brokerage margin for the first year.
Limit on the Gross Brokerage Margin for the First Year
The effect of interest rate fluctuations on the gross brokerage margin for the first year is calculated using the methodology known as scenario simulation. On a monthly basis, gross brokerage margin for the first year is simulated in a base scenario and in a “+400 bps” scenario for peso currency and “+200 bps” scenario for dollar scenario. In order to prepare each scenario, different criteria are assumed regarding the sensitivity to interest rates of assets and liabilities, depending on the historical performance observed of the different balance sheet items. Gross brokerage margin for the first year in the “+400 bps” and “+200 bps” scenario is compared to the gross brokerage margin for the first year in the “base” scenario. The resulting difference is related to the annualized accounting gross brokerage margin for the last calendar trailing quarter available, for Banco Galicia on a consolidated basis.
The limit on a potential loss was established at 10% of the gross brokerage margin for the first year, as defined above. At fiscal year-end, the negative difference between the gross brokerage margin for the first year corresponding to the “+400/200 bps” scenario and that corresponding to the “base” scenario accounted for -6.4%-4.2% of the gross brokerage margin for the first year.
The tables below show as of December 31, 2018 and December 31, 2017,2019 in absolute and percentage terms, the change in Banco Galicia’s gross brokerage margin (“GBM”) of the first year, as compared to the gross brokerage margin of the “base” scenario corresponding to various interest-rate scenarios in which interest rates change 50, 100, 150 and 200 bps from those in the “base” scenario. Banco Galicia’s net portfolio is broken down into trading and non-trading. The trading net portfolio represents primarily securities issued by the Argentine Government.
Net Portfolio | Net Portfolio | Net Portfolio |
| |||||||||||||||||
|
| Gross Brokerage Margin (1) |
| Gross Brokerage Margin (1) |
| |||||||||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2019 |
| |||||||||||||
|
| (In millions of Pesos, except percentages) |
| (In millions of Pesos, except percentages) |
| |||||||||||||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| Variation |
|
| % Change in the GBM |
| Variation |
|
| % Change in the GBM |
| ||||
200 |
|
| 2,118 |
|
| 3.02% |
|
| 762 |
|
| 2.88% |
|
| 2,812 |
|
|
| 2.54 | % |
150 |
|
| 1,525 |
|
| 2.17% |
|
| 570 |
|
| 2.15% |
|
| 2,106 |
|
|
| 1.91 | % |
100 |
|
| 933 |
|
| 1.33% |
|
| 377 |
|
| 1.42% |
|
| 1,403 |
|
|
| 1.27 | % |
50 |
|
| 343 |
|
| 0.49% |
|
| 185 |
|
| 0.70% |
|
| 700 |
|
|
| 0.64 | % |
Static |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50) |
|
| (568 | ) |
| (0.81)% |
|
| (195 | ) |
| (0.74)% |
|
| (655 | ) |
|
| (0.60 | )% |
(100) |
|
| (1,255 | ) |
| (1.79)% |
|
| (382 | ) |
| (1.44)% |
|
| (1,310 | ) |
|
| (1.19 | )% |
(150) |
|
| (1,935 | ) |
| (2.76)% |
|
| (597 | ) |
| (2.26)% |
|
| (1,962 | ) |
|
| (1.78 | )% |
(200) |
|
| (2,598 | ) |
| (3.70)% |
|
| (812 | ) |
| (3.07)% |
|
| (2,512 | ) |
|
| (2.37 | )% |
(1) Net interest of the first year
Net Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 136 |
|
|
| 0.12 | % |
150 |
|
| 101 |
|
|
| 0.09 | % |
100 |
|
| 68 |
|
|
| 0.06 | % |
50 |
|
| 34 |
|
|
| 0.03 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (33 | ) |
|
| (0.03 | )% |
(100) |
|
| (67 | ) |
|
| (0.06 | )% |
(150) |
|
| (100 | ) |
|
| (0.09 | )% |
(200) |
|
| (133 | ) |
|
| (0.12 | )% |
(1) Net interest of the first year
Net Non -Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 2,676 |
|
|
| 2.43 | % |
150 |
|
| 2,005 |
|
|
| 1.82 | % |
100 |
|
| 1,335 |
|
|
| 1.21 | % |
50 |
|
| 666 |
|
|
| 0.61 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (622 | ) |
|
| (0.57 | )% |
(100) |
|
| (1,243 | ) |
|
| (1.13 | )% |
(150) |
|
| (1,862 | ) |
|
| (1.69 | )% |
(200) |
|
| (2,479 | ) |
|
| (2.25 | )% |
(1) Net interest of the first year
Net Trading Portfolio | ||||||||||||
|
| Gross Brokerage Margin (1) | ||||||||||
|
| December 31, 2018 |
| December 31, 2017 | ||||||||
|
| (In millions of Pesos, except percentages) | ||||||||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| Variation |
|
| % Change in the GBM | ||
200 |
|
| 24 |
|
| 0.03% |
|
| 213 |
|
| 0.80% |
150 |
|
| 18 |
|
| 0.03% |
|
| 158 |
|
| 0.60% |
100 |
|
| 12 |
|
| 0.02% |
|
| 103 |
|
| 0.39% |
50 |
|
| 6 |
|
| 0.01% |
|
| 48 |
|
| 0.18% |
Static |
|
|
|
|
|
|
|
|
|
|
|
|
(50) |
|
| (6 | ) |
| (0.01)% |
|
| (60 | ) |
| (0.23)% |
(100) |
|
| (12 | ) |
| (0.02)% |
|
| (114 | ) |
| (0.43)% |
(150) |
|
| (17 | ) |
| (0.02)% |
|
| (168 | ) |
| (0.63)% |
(200) |
|
| (23 | ) |
| (0.03)% |
|
| (222 | ) |
| (0.84)% |
|
|
Net Non -Trading Portfolio | ||||||||||||
|
| Gross Brokerage Margin (1) | ||||||||||
|
| December 31, 2018 |
| December 31, 2017 | ||||||||
|
| (In millions of Pesos, except percentages) | ||||||||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| Variation |
|
| % Change in the GBM | ||
200 |
|
| 2,094 |
|
| 2.98% |
|
| 549 |
|
| 2.07% |
150 |
|
| 1,507 |
|
| 2.15% |
|
| 412 |
|
| 1.56% |
100 |
|
| 921 |
|
| 1.31% |
|
| 274 |
|
| 1.04% |
50 |
|
| 337 |
|
| 0.48% |
|
| 137 |
|
| 0.52% |
Static |
|
|
|
|
|
|
|
|
|
|
|
|
(50) |
|
| (562 | ) |
| (0.80)% |
|
| (135 | ) |
| (0.51)% |
(100) |
|
| (1,243 | ) |
| (1.77)% |
|
| (268 | ) |
| (1.01)% |
(150) |
|
| (1,918 | ) |
| (2.73)% |
|
| (429 | ) |
| (1.62)% |
(200) |
|
| (2,575 | ) |
| (3.67)% |
|
| (590 | ) |
| (2.23)% |
|
|
Limit on the Net Present Value of Assets and Liabilities
The net present value of assets and liabilities is also calculated on a monthly basis and taking into account the assets and liabilities of Banco Galicia’s consolidated balance sheet. The methodology used for calculating interest rate risk is based on the net present value of the underlying asset of liability.
The net present value of the consolidated assets and liabilities, as mentioned, is calculated for a “base” scenario in which the listed securities portfolio is discounted using interest rates obtained according to yield curves determined based on the market yields of different reference bonds denominated in Pesos, foreign currency and adjusted by CER/UVA. Yield curves for unlisted assets and liabilities are also created using market interest rates. The net present value of assets and liabilities is also obtained for a second scenario called “critical”, where through a significant number of statistical simulations of the interest rate track record, a “critical” scenario is obtained as a result of the interest rate risk exposure presented by the balance sheet structure.
The economic capital is obtained from the resulting difference between the “critical” scenario and the net present value of assets and liabilities of the “base” scenario, and considering a 99.5% degree of accuracy.
The limit on interest rate risk exposure, expressed as a difference between the net present value of assets and liabilities in the “base” scenario and the “critical” scenario cannot exceed 15% of the consolidated RPC. As of December 31, 2018,2019, the “Value at Risk” was -14.2%-8.65% of the RPC.
Foreign Exchange Rate Risk
Exchange-rate sensitivity is the relationship between the fluctuations of exchange rates and Banco Galicia’s net financial income resulting from the revaluation of Banco Galicia’s assets and liabilities denominated in foreign currency. The impact of variations in the exchange rate on Banco Galicia’s net financial income depends on whether Banco Galicia has a net asset foreign currency position (the amount by which foreign currency denominated assets exceed foreign currency denominated liabilities) or a net liability foreign currency position (the amount by which foreign currency denominated liabilities exceed foreign currency denominated assets). In the first case an increase/decrease in the exchange rate results in a gain/loss, respectively. In the second case, an increase/decrease results in a loss/gain, respectively. Banco Galicia has established limits for its consolidated foreign currency mismatches for the asset and liability positions of -9 % and + 30% of Banco Galicia’s RPC. At the end of the fiscal year, Banco Galicia’s net asset position in foreign currency represented 0.6%.
As of December 31, 2018,2019, Banco Galicia had a net asset foreign currency position of Ps.620Ps.4,929 million (US$1682 million) after adjusting its on-balance sheet net asset position of Ps.4,906 million (US$82 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.23 million (US$0,4 million), recorded off-balance sheet.
As of December 31, 2018, Banco Galicia had a net liability foreign currency position of Ps.978 million (US$26 million) after adjusting its on-balance sheet net liability position of Ps.591Ps.1,079 million (US$1329 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.101 million (US$3 million), recorded off-balance sheet.
As of December 31, 2017, Banco Galicia had a net assetliability foreign currency position of Ps.519Ps.549 million (US$2729 million), after adjusting its on-balance sheet net asset position of Ps.2033millionPs.2,003million (US$108107 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.2,552 million (US$136 million), recorded off-balance sheet.
As of January 1, 2017, Banco Galicia had a net asset foreign currency position of Ps.1,041 million (US$65 million) after adjusting its on-balance sheet net liability position of Ps.1,371 million (US$87 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.2,412 million (US$152 million), recorded off-balance sheet
The tablestable below show the effects of changes in the exchange rate of the Peso vis-à-vis the Dollar on the value of Banco Galicia’s foreign currency net asset position as of December 31, 2018, 2017 and January 1, 2017.2019. As of these dates, the breakdown of Banco Galicia’s foreign currency net asset position into trading and non-trading is not presented, as Banco Galicia’s foreign currency trading portfolio was not material
|
|
|
| Value of Foreign Currency Net Position |
|
|
|
| Value of Foreign Currency Net Position |
| ||||||||||||||||||
|
|
|
| As of December 31, |
|
|
|
| As of December 31, |
| ||||||||||||||||||
|
|
|
| 2018 |
|
|
|
| 2019 |
| ||||||||||||||||||
Percentage Change in the Value of the Peso Relative to the Dollar (1) | Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| ||||||
|
|
|
| (in millions of Pesos, except percentages) |
|
|
|
| (in millions of Pesos, except percentages) |
| ||||||||||||||||||
40% | 40% |
|
|
| 867 |
|
|
| 247 |
|
|
| 40 |
| 40% |
|
|
| 6,896 |
|
|
| 1,967 |
|
|
| 40 |
|
30% | 30% |
|
|
| 806 |
|
|
| 186 |
|
|
| 30 |
| 30% |
|
|
| 6,408 |
|
|
| 1,479 |
|
|
| 30 |
|
20% | 20% |
|
|
| 744 |
|
|
| 124 |
|
|
| 20 |
| 20% |
|
|
| 5,915 |
|
|
| 986 |
|
|
| 20 |
|
10% | 10% |
|
|
| 682 |
|
|
| 62 |
|
|
| 10 |
| 10% |
|
|
| 5,422 |
|
|
| 493 |
|
|
| 10 |
|
Static (2) | Static (2) |
|
|
| 620 |
|
| - |
|
| - |
| Static (2) |
|
|
| 4,929 |
|
| - |
|
| - |
| ||||
-10% | -10% |
|
|
| 558 |
|
|
| (62 | ) |
|
| (10 | ) | -10% |
|
|
| 4,436 |
|
|
| (493 | ) |
|
| (10 | ) |
-20% | -20% |
|
|
| 496 |
|
|
| (124 | ) |
|
| (20 | ) | -20% |
|
|
| 3,943 |
|
|
| (986 | ) |
|
| (20 | ) |
-30% | -30% |
|
|
| 434 |
|
|
| (186 | ) |
|
| (30 | ) | -30% |
|
|
| 3,450 |
|
|
| (1,479 | ) |
|
| (30 | ) |
-40% | -40% |
|
|
| 373 |
|
|
| (247 | ) |
|
| (40 | ) | -40% |
|
|
| 2,962 |
|
|
| (1,967 | ) |
|
| (40 | ) |
(1) Devaluation / (Revaluation).
(2) Adjusted to reflect forward purchases and sales of foreign currency without delivery of the underlying asset, registered in memorandum accounts.
|
|
|
|
|
|
|
| Value of Foreign Currency Net Position |
| |||||||||
|
|
|
| As of December 31, |
| |||||||||
|
|
|
| 2017 |
| |||||||||
Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| ||||
|
|
|
| (in millions of Pesos, except percentages) |
| |||||||||
40% |
|
|
| (726 | ) |
|
| (207 | ) |
|
| 40 |
| |
30% |
|
|
| (675 | ) |
|
| (156 | ) |
|
| 30 |
| |
20% |
|
|
| (623 | ) |
|
| (104 | ) |
|
| 20 |
| |
10% |
|
|
| (571 | ) |
|
| (52 | ) |
|
| 10 |
| |
Static (2) |
|
|
| 519 |
|
| - |
|
| - |
| |||
-10% |
|
|
| (467 | ) |
|
| (52 | ) |
|
| (10 | ) | |
-20% |
|
|
| (415 | ) |
|
| (104 | ) |
|
| (20 | ) | |
-30% |
|
|
| (363 | ) |
|
| (156 | ) |
|
| (30 | ) | |
-40% |
|
|
| (312 | ) |
|
| (207 | ) |
|
| (40 | ) | |
|
|
|
|
|
|
|
| Value of Foreign Currency Net Position |
| |||||||||
|
|
|
| As of January 1, |
| |||||||||
|
|
|
| 2017 |
| |||||||||
Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| ||||
|
|
|
| (in millions of Pesos, except percentages) |
| |||||||||
40% |
|
|
| 1,456 |
|
|
| 415 |
|
|
| 40 |
| |
30% |
|
|
| 1,353 |
|
|
| 312 |
|
|
| 30 |
| |
20% |
|
|
| 1,249 |
|
|
| 208 |
|
|
| 20 |
| |
10% |
|
|
| 1,145 |
|
|
| 104 |
|
|
| 10 |
| |
Static (2) |
|
|
| 1,041 |
|
| - |
|
| - |
| |||
-10% |
|
|
| 937 |
|
|
| (104 | ) |
|
| (10 | ) | |
-20% |
|
|
| 833 |
|
|
| (208 | ) |
|
| (20 | ) | |
-30% |
|
|
| 729 |
|
|
| (312 | ) |
|
| (30 | ) | |
-40% |
|
|
| 626 |
|
|
| (415 | ) |
|
| (40 | ) | |
|
|
|
|
Currency Mismatches
The funding and the use of funds in loans and/or investments can be carried out in assets and liabilities denominated in different currencies. As such, there is the potential for a currency mismatch between liabilities and the use thereof on assets, generating a risk. Currency risk is defined as the risk of incurring equity losses as a result of variations in the foreign currency exchange rates in which assets and liabilities are denominated.
The management of the Bank’s currency risk mismatch involves the monitoring of foreign currency-denominated assets and liabilities that may change in the short- and or mid-term. One of the available market instruments for the management of currency mismatches of assets and liabilities are “currency futures” transactions, which are traded on the MAE (MAE – OCT) and Mercado a Término de Rosario (ROFEX).
The policy framework currently in force establishes limits in terms of maximum net asset positions (assets denominated in a currency which are higher than the liabilities denominated in such currency) and net liability positions (assets denominated in a currency which are lower than the liabilities denominated in such currency) for mismatches in foreign currency, as a proportion of the Bank’s computable regulatory capital (“RPC”), on a consolidated basis.
The table below shows the composition of the Bank’sGrupo Financiero Galicia’s Shareholders’ Equity as of December 31, 2018,2019, by currency and type of adjustment:
|
| December 31, 2018 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Assets |
|
| Liabilities |
|
| Gap |
|
| Assets |
|
| Liabilities |
|
| Gap |
| ||||||
|
| (in millions of Pesos) |
|
| (in millions of Pesos) |
| ||||||||||||||||||
Financial Assets and Liabilities |
|
| 541,490 |
|
|
| 489,870 |
|
|
| 51,620 |
|
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by UVA |
|
| 18,457 |
|
|
| 3,207 |
|
|
| 15,250 |
|
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted |
|
| 322,227 |
|
|
| 286,218 |
|
|
| 36,009 |
|
|
| 404,602 |
|
|
| 338,247 |
|
|
| 66,355 |
|
Foreign Currency (1) |
|
| 200,806 |
|
|
| 200,445 |
|
|
| 361 |
|
|
| 205,397 |
|
|
| 196,617 |
|
|
| 8,780 |
|
Other Assets and Liabilities |
|
| 28,202 |
|
|
| 17,979 |
|
|
| 10,223 |
|
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Gap |
|
| 569,692 |
|
|
| 507,849 |
|
|
| 61,843 |
|
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
Adjusted for Forward Transactions Recorded in Memo Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets and Liabilities |
|
| 541,490 |
|
|
| 489,870 |
|
|
| 51,620 |
|
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by the UVA |
|
| 18,457 |
|
|
| 3,207 |
|
|
| 15,250 |
|
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted, Including Shareholders’ Equity (2) |
|
| 282,085 |
|
|
| 246,177 |
|
|
| 35,908 |
|
|
| 378,580 |
|
|
| 312,248 |
|
|
| 66,332 |
|
Foreign Currency (1) (2) |
|
| 240,948 |
|
|
| 240,486 |
|
|
| 462 |
|
|
| 231,419 |
|
|
| 222,616 |
|
|
| 8,803 |
|
Other Assets and Liabilities |
|
| 28,202 |
|
|
| 17,979 |
|
|
| 10,223 |
|
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Adjusted Gap |
|
| 569,692 |
|
|
| 507,849 |
|
|
| 61,843 |
|
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
(1) In Pesos, at an exchange rate of Ps.59.8950 per US$1.
(2) Adjusted for forward sales and purchases of foreign exchange, without delivery of underlying assets and recorded in Memorandum Accounts.
|
|
|
|
As of December 31, 2018,2019, considering the adjustments from forward transactions recorded under memorandum accounts, BancoGrupo Financiero Galicia had net asset positions in foreign currency and Pesos adjusted and non-adjusted.
The paragraphs below describe the composition of the different currency mismatches of assets and liabilities as of December 31, 2018:2019:
Assets and Liabilities Denominated in Foreign Currency
As of December 31, 2018,2019, the Bank’sGrupo Financiero Galicia’s assets denominated in foreign currency were mainly comprised of the following: (i) Ps.95,614Ps.91,749 million of cash and balances from the Argentine Central Bank and correspondent banks; (ii) Ps.95,707Ps.98,556 million for loans (principal plus interest, net of allowances)interest) and other financing, including Ps.1,002Ps.1,521 million for receivables for financial leases; (iii) Ps.4,375Ps.5,301 million for debt securities, primarily financial trusts; (iv) Ps.2,893Ps.5,563 million for government and private securities (v) Ps.2,404 million for other financial assets and (vi) Ps.1,753 million for assets pledged as collateral, including forward purchases of government securities and (v) Ps.1,459 million for government and private securities.
The liabilities denominated in foreign currency consisted mainly of: (i) Ps.162,668Ps.143,198 million for deposits (principal, interest and quotation differences); (ii) Ps.13,955Ps.17,991 million for payables to banks and international credit entities; (iii) Ps.13,619Ps.21,669 million for subordinated and unsubordinated notes issued by Banco Galicia; and (iv) Ps.8,003Ps.12,896 million for other financial liabilities, mainly collections on behalf of third parties; (v) Ps.1,895 million for repurchase transactions; and (vi) Ps.1,087 million for sales of government securities and foreign currency pending settlement.parties.
A net asset position of Ps.361Ps.8,780 million stemmed from the consolidated balance sheet. Furthermore, forward transactions in foreign currency without delivery of the underlying asset were recorded in memorandum accounts, which, in terms of their notional value, were equal to a net asset position of Ps.101Ps.22 million. Therefore, as of that date, the net position in foreign currency adjusted to reflect these transactions was a net asset position of Ps.462Ps.8,803 million, equivalent to US$12147 million.
Banco Galicia has set limits as regards foreign-currency mismatches at -9% of the Bank’s RPC for its net liability position and at +30% of the Bank’s RPC for its net asset position. At the fiscal year-end, Banco Galicia's net asset position in foreign currency represented 0.8%9.4% of its RPC.
Non-Adjusted Peso-Denominated Assets and Liabilities
The Bank’s
Grupo Financiero Galicia’s non-adjusted Peso-denominated assets at December 31, 20182019 were mainly comprised of the following: (i) Ps.168,546Ps.233,353 million for loans (principal plus interest, net of allowances) including Ps.1,167
Ps.682 million for receivables from financial leases and Ps.974Ps.2,544 million for miscellaneous receivables; (ii) Ps.70,098Ps.58,141 million for the holding of securities issued by the Argentine Central Bank. (Leliq)(LELIQ); (iii) Ps.52,883Ps.46,425 million for cash and balances held at the Argentine Central Bank and correspondent banks (including the balance of escrow accounts); (iv) Ps.14,438Ps.30,075 million for repurchase transactions; (v) Ps.15,705 million for the holding of government and private securities; (v)securities, including Ps.10,949 million for BOTE 2020; (vi). Ps.8,351Ps.8,511 million for “Other Financial Assets”, out of which Ps.4,223Ps.643 million was related to mutual funds of regional credit-card companies; (vi) Ps.2,736Tarjetas Regionales; and (vii) Ps.2,272 million pledged as collateral; and (vii) Ps.2,068 million for repurchase transactions.collateral.
Banco
Grupo Financiero Galicia’s non-adjusted Peso-denominated liabilities at December 31, 20182019 were mainly comprised of the following (i) Ps.194,223Ps.248,588 million for deposits (principal plus interest); (ii) Ps.36,895Ps.48,034 million for liabilities payable to stores, credit card transactions of Banco Galicia and Tarjetas Regionales; (iii) Ps.26,133Ps.23,071 million for notes issued by Banco Galicia and Tarjetas Regionales; (iv) Ps.16,567Ps.7,911 million for other financial liabilities; (v) Ps.4,732 million for debt incurred with local financial institutions and (vi) Ps.2,516 million for amounts payable for future transactions and transactions pending settlement of government securities and foreign currency; and (v) Ps.5,631 million for debt incurred with local financial institutions.currency.
The net asset position in non-adjusted Peso-denominated assets and liabilities was Ps.35,908Ps.66,332 million at December 31, 2018.2019.
Peso-Denominated Assets and Liabilities Adjusted by UVA
At December 31, 2018,2019, the net asset position amounted to Ps.15,250Ps.26,385 million, which is primarily comprised of Ps.17,474Ps.26,515 million for loans, mainly UVA mortgage loans and Ps.984Ps.1,820 million for miscellaneous receivables.
With respect to liabilities, Ps.2,481Ps.1,175 million was related to UVA-adjusted time deposits and Ps.726Ps.775 million related to balances of the unemployment fund of construction workers.
Other Assets and Liabilities
As of December 31, 2018,2019, “Other Assets - Liabilities” mainly included the following: (i) property, plant and equipment, miscellaneous and intangible assets for Ps.26,450Ps.44,134 million; and (ii) miscellaneous receivables for Ps.1,068Ps.2,807 million.
As of December 31, 2018,2019, liabilities mainly included the following: (i) Ps.14,098Ps.16,590 million recorded in “Other Non-financial Liabilities”; (ii) Ps.1,100Ps.10,315 million for insurance contractcurrent income tax liabilities; and (iii) Ps.1,449Ps.2,747 million for provisions for other contingencies.
Market Risk
The exposure to portfolios of listed financial instruments, whose value varies according to the movement in their market prices, is subject to a specific policy framework that regulates the risk of incurring a loss as a consequence of the variation of the market price of financial assets whose value is subject to negotiation.
Brokerage transactions and/or investments in government securities, currencies, notes, derivative products and debt instruments issued by the Argentine Central Bank are governed by the policy that limits the maximum tolerable losses in a given fiscal year.
In order to gauge and monitor this source of risk, the model known as VaR is used, among others. This model determines intra-daily, for the Bank individually, the possible loss that could be generated by the positions in equity securities, currencies, derivative instruments, and debt securities issued by the Argentine Central Bank and currencies under certain parameters.
The parameters taken into consideration are as follows:
(i) A 99% degree of accuracy. |
|
|
(ii) VaR estimates are made for holding periods of one day and “n” days, where “n” is defined as the number of days necessary to settle the position in each security.
(iii) In the case of securities, if they are new issuances, the available trading days are taken into consideration for the calculation of volatilities; if there are not enough trading days or if there are no quotations, the volatility of bonds from domestic issuers with similar risk and characteristics is used.
(ii)
VaR estimates are made for holding periods of one day and “n” days, where “n” is defined as the number of days necessary to settle the position in each security.
|
|
Banco Galicia’s policy requires that the Risk Management and Treasury Divisions agree on the parameters under which the models work, and establishes the maximum losses authorized both for equity securities, foreign-currency, Argentine Central Bank’s debt instruments and derivative products in a fiscal year. Maximum losses were established in:
Risk |
| Policy on Limits |
| (in millions of Pesos) | |
Currency |
|
|
Fixed-income instruments |
|
|
Interest rate derivatives |
|
|
Variable income |
| 1 |
Furthermore, the policy includes the regular undertaking of stress tests, the goal of which is to assess the risk positions and their results, under adverse market conditions. Finally, “contingency plans” were designed for each transaction, which include the actions to be implemented in a critical scenario.
Cross-Border Risk
Cross-border risk represents the risk of incurring equity losses as a consequence of the impairment or failure to collect on foreign credit exposures (loans, securities holdings, equity investments, and cash) abroad. It includes risks generated by entering into transactions with public or private counterparties domiciled outside of Argentina.
In order to regulate risk exposures in international jurisdictions, limits were established taking into consideration the jurisdiction’s credit rating, the type of transaction and a maximum exposure acceptable for each counterparty.
The Bank defined its policy by setting maximum exposure limits measured as a percentage of its RPC and taking into account if the counterparty is considered investment grade:
Risk | Required Credit Rating | Investment Grade |
| Not Investment Grade | |||
-Jurisdictional Risk | -International Rating Agency | -No limit | -Maximum limit: 5% | ||||
-Counterparty Risk | -International Banking Relations -Credit Division | -Maximum limit: 15% -The limit is distributed between financial and foreign trade transactions, thus absorbing local counterparty margin | -Maximum limit: 1% -Only foreign trade transactions |
Overseas Foreign Currency Transfer Risk
With a view towards mitigating the risk resulting from a potential change in domestic laws that may affect overseas foreign currency transfers and in order to meet incurred liabilities, a policy was devised to set a limit for liabilities transferred abroad, as a proportion to total consolidated liabilities. Such ratio was fixed at 15%.
As of December 31, 2018,2019, such exposure was 7.4%10.4% over total liabilities.liabilities
Risk Exposures in the Non-Financial Public Sector
The Argentine Central Bank imposes restrictions with respect to financing for the non-financial Public Sector and establishes limits in connection with the agencies that can be aided, the types of permitted loans and maximum amounts that can be granted. Such maximum amounts are set on the basis of the Bank’s RPC.
Banco Galicia provides two types of financial assistance to such sector: (i) assistance through the issuance of government securities; and (ii) direct assistance through loans, leasing, corporate securities, discounted notes, overdrafts, guarantees granted, foreign trade transactions, payroll loans, credit cards, etc.
Risk exposures on loans granted to such sector in national, provincial and municipal jurisdictions are governed by a specific policy, applicable to agencies within such jurisdictions, decentralized entities, companies and trust funds with underlying cash flows from the non-financial public sector.sector.
Item 12. Description of Securities Other Than Equity Securities
D. American Depositary Shares
Fees and Charges Applicable to ADS Holders
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay |
|
|
|
|
|
|
|
|
|
|
|
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
|
|
Registration or transfer fees |
|
|
Expenses of the depositary |
|
|
|
|
|
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes. |
|
|
Any charges incurred by the depositary or its agents for servicing the deposited securities |
|
|
Fees and Direct and Indirect Payments Made by the Depositary to Us
Past Fees and Payments
Grupo Financiero Galicia received a payment of US$ 283,948 for fiscal year 2019, US$267,815 for fiscal year 2018 and US$286,530 for fiscal year 2017 and US$280,601 for fiscal year 2016 in relation to continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing
filing annual and interim financial reports, printing and distributingrelevant information reports, processing dividend checks,distribution, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone and conference calls), accounting fees and legal fees.
Future Fees and Payments
The Bank of New York Mellon, as depositary, has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADSs program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees and certain accounting and legal fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consists of the expenses of postage and envelopes for mailingfiling annual and interim financial reports, printing and distributingrelevant information reports, processing dividend checks,distributions, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone and conference calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. There are limits on the amount of expenses for which the depositary will reimburse the Company butand the amount of reimbursement available to the Company is not tiedsubject to the amount of fees the depositary collects from investors.investors in any given fiscal year.
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
We expect to receive a similar reimbursement from the depositary for expenses for the fiscal year ending December 31, 20192020 to the one we received for the fiscal year ended December 31, 2018.2019.
Not applicable.
Not applicable.
(a) Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended). We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with or submit to the SEC under the Exchange Act, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. Our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to provide reasonable assurance of their reliability. Notwithstanding the effectiveness of our disclosure controls and procedures, these disclosure controls and procedures cannot provide absolute assurance of achieving their objectives because of their inherent limitations. Disclosure controls and procedures are processes that involve human diligence and compliance and are subject to error in judgment. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by our disclosure controls and procedures.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
1)Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us and our consolidated subsidiaries. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act, as amended, as a process. Our internal control over financial reporting was designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidatedfinancial statements for external purposes in accordance with IFRS as issued by the IASB. Internal control over financial reporting includes those policies and procedures that:
- pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
applicable generally accepted accounting principles. Internal controlsIFRS andproceduresthat receipts and expenditures of Grupo Galicia areprocessesbeing made only in accordance with authorizations of our management and directors; and - provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that
involve human diligence and compliance and are subject to error in judgment.could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
2)Management assessedconducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management usedbased on the criteria set forthframework in Internal Control—Integrated Framework 2013 issued by the CommitteeCOSO.
3)Based on our assessment, we and our management have concluded that our internal control over financial reporting was effective as of December 31, 2018.2019.
4) Price Waterhouse & Co. S.R.L., an independent registered public accounting firm, has audited theThe effectiveness of our internal control over financial reporting as of December 31, 2018,2019 has been audited by PriceWaterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their report to our consolidated financial statements.which is included herein.
(c) See Item 18. “Financial Statements–Report of the Independent Registered Public Accounting Firm” for our registered public accounting firm’s attestation report on the effectiveness of our internal control over financial reporting.
(d) Changes in Internal Control over Financial Reporting During the Year Ended December 31, 2018.2019.
re
porting.Item 16A. Audit Committee Financial Expert
Mr. Antonio R. GarcésDaniel Llambías was the financial expert serving on our Audit Committee for thefiscal year ended December 31, 2018. Mr. Garcés also considered independent as such term is defined under Nasdaq National Market listing requirements.2019.
The following table sets forth the total amount billed to us by our independent registered public accounting firm, Price Waterhouse & Co. S.R.L., during the fiscal years ended December 31, 20182019 and 2017.2018.
|
| 2018 |
|
| 2017 |
| ||
|
| (in thousands of Pesos) |
| |||||
Audit Fees |
|
| 67,132 |
|
|
| 78,627 |
|
Audit Related Fees |
|
| 10,999 |
|
|
| 16,746 |
|
Tax Fees |
|
| 4,831 |
|
|
| 11,048 |
|
All Other Fees |
|
| 12,732 |
|
|
| 8,678 |
|
Total |
|
| 95,694 |
|
|
| 115,099 |
|
Audit Fees
Audit fees are mainly the fees billed in relation with professional services for auditing our consolidated financial statements under local and U.S. GAAP requirements for the fiscal years ended December 31, 2018 and December 31, 2017.
Audit-related fees are fees billed for professional services related to attestation, review and verification services with respect to our financial information and the provision of services in connection with special reports in 2018 and 2017.
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| (in thousands of Pesos) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Audit Fees |
|
| 81,269 |
|
|
| 68,522 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Audit Related Fees |
|
| 12,300 |
|
|
| 11,097 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| (3,060 | ) | 461 | (2,142 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Assets | 2,011 | 2,419 | (6,279 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loans and
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Non-financial Public Sector |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (4,307 | ) | (76 | ) | 116 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Non-financial Assets | (1,623 | ) | (1,737 | ) | (2,625 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-current Assets Held for | 896 | 15,771 | 91 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Increases/(Decreases) from Operating Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Non-financial Public Sector | (11,249 | ) | 10,539 | (1,025 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Financial Sector | (644 | ) | 833 | 83 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Non-financial Private Sector and |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1,877 | ) | 3,299 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | (1,943 | ) | 1,522 | 855 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Liabilities | (29,681 | ) | 12,129 | (2,683 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions | 517 | 849 | 289 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Non-financial Liabilities | (805 | ) | (15,019 | ) | 4,089 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Collections/Payments | (10,103 | ) | (11,415 | ) | (10,159 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Cash (used in)/generated by Operating Activities | (10,569 | ) | 121,928 | (13,810 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In fiscal year 2019, net cash used in operating activities including the inflationary effect amounted to Ps.10,569 million, mainly due to: (i) a Ps.148,318 million net decrease in deposits to non-financial private sector and residents abroad and (ii) a Ps.29,681 million decrease in other financial liabilities. Such amount was partially offset by net cash provided by Ps.53,239 million related to a decrease in net loans and other financing to non-financial private sector and residents abroad.
In fiscal year 2018, net cash generated by operating activities including the inflationary effect amounted to Ps.121,928 million, mainly due to: (i) a Ps.86,666 million increase in deposits from non-financial private sector and residents abroad, (ii) a Ps.18,380 million decrease in debt securities measured at fair value through profit or loss and (iii) a Ps.15,771 million decrease in non-current assets held for sale, partially offset due to: (i) a Ps.21,300 million increase in loans to non-financial private sector and residents abroad, (ii) a Ps.15,755 million increase in other debt securities and (iii) Ps.15,019 million decrease in other non-financial liabilities.
In fiscal year 2017, net cash used in operating activities including the inflationary effect amounted to Ps.13,810 million, mainly due to a Ps.67,535 million increase in net loans and other financing to non-financial private sector and residents abroad and partially offset by a Ps.30,616 million increase of deposits from non-financial private sector and residents abroad.
Cash Flows from Investing Activities
|
| December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
|
|
|
|
| |||||
Cash Flows from Investment Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payments: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of PP&E, Intangible Assets and Other Assets |
|
| (7,897 | ) |
|
| (5,673 | ) |
|
| (5,015 | ) |
Purchase of Non-controlling Interests |
|
| — |
|
|
| — |
|
|
| (2,249 | ) |
Collections: |
|
|
|
|
|
|
|
|
|
|
|
|
Sale of PP&E, Intangible Assets and Other Assets |
|
| 2,679 |
|
|
| 156 |
|
|
| 1,309 |
|
Net Cash used in Investment Activities |
|
| (5,218 | ) |
|
| (5,517 | ) |
|
| (5,955 | ) |
In fiscal year 2019, net cash used in investing activities amounted to Ps.5,218 million mainly attributable to the acquisition of property, plants and equipment, intangible assets and other assets for Ps.7,897 million. Such amount was partially offset by funds provided by the sale of property, plants and equipment, intangible assets and other assets for Ps.2,679 million.
In fiscal year 2018, net cash used in investing activities amounted to Ps.5,517 million mainly attributable to the acquisition of property, plant and equipment, intangible assets and other assets for Ps.5,673 million.
In fiscal year 2017, net cash used in investing activities amounted to Ps.5,955 million mainly attributable to (i) the acquisition of property, plant and equipment, intangible assets and other assets for Ps.5,015 million, and (ii) the acquisition of non-controlling interest of Tarjetas Regionales for Ps.2,249 million.
Cash Flows from Financing Activities
|
| December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in millions of Pesos) |
|
|
|
|
| |||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payments: |
|
|
|
|
|
|
|
|
|
|
|
|
Unsubordinated Debt Securities |
|
| (16,884 | ) |
|
| — |
|
|
| (2,412 | ) |
Subordinated Debt Securities |
|
| — |
|
|
| — |
|
|
| (557 | ) |
Loans from Local Financial Institutions |
|
| (7,190 | ) |
|
| — |
|
|
| (1,692 | ) |
Dividends |
|
| (2,661 | ) |
|
| (2,636 | ) |
|
| (859 | ) |
Leases payment |
|
| (1,000 | ) |
|
| — |
|
|
| — |
|
Collections: |
|
|
|
|
|
|
|
|
|
|
|
|
Unsubordinated Debt Securities |
|
| — |
|
|
| 14,929 |
|
|
| — |
|
Loans from Financial Institutions |
|
| — |
|
|
| 12,042 |
|
|
| — |
|
Subordinated Debt Securities |
|
| 473 |
|
|
| 4,060 |
|
|
| — |
|
Capital increase |
|
| 132 |
|
|
| — |
|
|
| 26,125 |
|
Net Cash (used in)/generated by Financing Activities |
|
| (27,130 | ) |
|
| 28,395 |
|
|
| 20,605 |
|
In fiscal year 2019, net cash used in financing activities amounted to Ps.27,130 million due to: (i) Ps.16,884 million as a consequence of the payments of principal and interest on unsubordinated debt securities, (ii) Ps.7,190 million for payments of loans from local financial institutions, (iii) Ps.2,661 million of payments of dividends and (iv) Ps.1,000 million for leases payments.
In fiscal year 2018, financing activities provided cash in the amount of Ps.28,395 million due to: (i) issuances of unsubordinated debt securities for approximately Ps.14,929 million during 2018 and (ii) an increase in loans from local financial institutions for Ps.12,042 million.
In fiscal year 2017, financing activities provided cash in the amount of Ps.20,605 million due to: (i) paid- in capital for Ps.26,125 million, partially offset by (i) Ps.2,412 million as a consequence of the payments of principal and interest on unsubordinated debt securities, (ii) Ps.1,692 million payments of loans from local financial institutions, (iii) Ps.859 million of payments of dividends and (iv) Ps.557 million as consequence of payments of principal and interest on subordinated debt securities.
Effect of Exchange Rate on Cash and Cash Equivalents
In fiscal year 2019, the effect of the exchange rate on consolidated cash flow amounted to Ps.51,076 million, a decrease of Ps.18,086 million as compared to fiscal year 2018. The exchange rate as of December 31, 2019 was Ps.59.8950 per US$1.
In fiscal year 2018, the effect of the exchange rate on consolidated cash flow amounted to Ps.69,162 million. The exchange rate as of December 31, 2018 was Ps.37.8083 per US$1.
In fiscal year 2017, the effect of the exchange rate on consolidated cash flow amounted to Ps.10,970 million. The exchange rate as of December 31, 2017 was Ps.18.7742 per US$1.
For a description of the types of financial interests we use and the maturity profile of our debt, currency and interest rate structure, see Item 5. “Operating and Financial Review and Prospects”— A.“Operating Results”.
Liquidity Management
Liquidity Gaps
Liquidity risk is the risk that Banco Galicia does not have a sufficient level of liquid assets to meet its contractual commitments and the operational needs of the business without affecting market prices. The goal of liquidity management is to maintain an adequate level of liquid assets that allows it to meet financial commitments at contractual maturity, take advantage of potential investment opportunities and meet demand for credit. To monitor and control liquidity risk, Banco Galicia monitors and systematically calculates gaps in liquidity through the application of an internal model that is subject to periodic review.
Banco Galicia’s liquidity policy covers three areas of liquidity risk:
- Stock Liquidity: The excess amount of cash and liquid assets above the legal minimum cash requirements, taking into account the characteristics and performance of Banco Galicia’s different liabilities, as well as the nature of the assets that provide such liquidity.
- Cash Flow Liquidity: Gaps between the contractual maturities of consolidated financial assets and liabilities.
- Concentration of Deposits: The concentration of deposits is regulated in terms of the top leading customers and the following 50 customers. A maximum limit with respect to the share in deposits is determined on an individual basis for such customers.
As of December 31, 2019, the consolidated gaps between maturities of Grupo Financiero Galicia´s financial assets and liabilities based on contractual remaining maturity were as follows:
|
| December 31, 2019 |
| |||||||||||||||||
|
| Less than one Year |
|
| 1 – 5 Years |
|
| 5 – 10 Years |
|
| Over 10 Years |
|
| Total |
| |||||
|
| (in millions of Pesos, except ratios) |
| |||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due from Banks |
|
| 56,617 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56,617 |
|
Argentine Central Bank – Escrow Accounts |
|
| 109,239 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 109,239 |
|
Overnight Placements in Banks Abroad |
|
| 7,398 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,398 |
|
Loans – Public Sector |
|
| 5,290 |
|
|
| 2,637 |
|
|
| — |
|
|
| — |
|
|
| 7,927 |
|
Loans – Private Sector |
|
| 242,667 |
|
|
| 69,912 |
|
|
| 5,716 |
|
|
| 10,161 |
|
|
| 328,456 |
|
Government Securities |
|
| 60,102 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,102 |
|
Notes and Securities |
|
| 2,341 |
|
|
| 186 |
|
|
| 5 |
|
|
| — |
|
|
| 2,532 |
|
Financial Trusts |
|
| 425 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 425 |
|
Receivables from Financial Leases |
|
| 914 |
|
|
| 1,240 |
|
|
| 13 |
|
|
| — |
|
|
| 2,167 |
|
Other Financing |
|
| 521 |
|
|
| 1,761 |
|
|
| — |
|
|
| — |
|
|
| 2,282 |
|
Government Securities Forward Purchase |
|
| 31,643 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,643 |
|
Total Assets |
|
| 517,157 |
|
|
| 75,736 |
|
|
| 5,734 |
|
|
| 10,161 |
|
|
| 608,788 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in Savings Accounts |
|
| 147,625 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 147,625 |
|
Demand Deposits |
|
| 100,237 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100,237 |
|
Time Deposits |
|
| 141,394 |
|
|
| 53 |
|
|
| — |
|
|
| — |
|
|
| 141,447 |
|
Notes |
|
| 16,592 |
|
|
| 3,911 |
|
|
| 14,943 |
|
|
| — |
|
|
| 35,446 |
|
Banks and International Entities |
|
| 13,278 |
|
|
| 8,775 |
|
|
| 666 |
|
|
| — |
|
|
| 22,719 |
|
Local Financial Institutions |
|
| 4,228 |
|
|
| 2,019 |
|
|
| - |
|
|
| — |
|
|
| 6,246 |
|
Other Financing |
|
| 70,446 |
|
|
| 305 |
|
|
| — |
|
|
| — |
|
|
| 70,752 |
|
Total Liabilities |
|
| 493,800 |
|
|
| 15,063 |
|
|
| 15,609 |
|
|
| — |
|
|
| 524,472 |
|
Asset / Liability Gap |
|
| 23,357 |
|
|
| 60,673 |
|
|
| (9,875 | ) |
|
| 10,161 |
|
|
| 84,316 |
|
Cumulative Gap |
|
| 23,357 |
|
|
| 84,030 |
|
|
| 74,155 |
|
|
| 84,316 |
|
|
| 84,316 |
|
Ratio of Cumulative Gap to Cumulative Liabilities |
|
| 4.73 |
|
|
| 16.51 |
|
|
| 14.14 |
|
|
| 16.08 |
|
|
|
|
|
Ratio of Cumulative Gap to Total Liabilities |
|
| 4.45 |
|
|
| 16.02 |
|
|
| 14.14 |
|
|
| 16.08 |
|
|
|
|
|
(*) Principal plus UVA adjustment. Does not include interest.
(1) Includes, mainly, debt with retailers due to credit card operations, liabilities in connection with repurchase transactions, debt with domestic credit agencies and collections for third parties.
The table above is prepared taking into account contractual maturity. Therefore, all financial assets and liabilities with no maturity date are included in the “Less than One Year” category.
Banco Galicia must comply with a maximum limit set by its board of directors for liquidity mismatches. This limit has been established at -25% (minus 25%) for the ratio of cumulative gap to total liabilities within the first year. Banco Galicia complies with the established policy, since such gap was of 4.5% as of December 2019.
Banco Galicia Liquidity Management
The following is a discussion of Banco Galicia’s liquidity management.
Banco Galicia’s policy is to maintain a level of liquid assets that allows it to meet financial commitments at contractual maturity, take advantage of potential investment opportunities, and meet customer’s credit demand. To set the appropriate level, forecasts are made based on historical experience and on an analysis of possible scenarios. This enables management to project funding needs and alternative funding sources, as well as excess liquidity and placement strategies for such funds. As of December 31, 2019, Banco Galicia’s liquidity structure was as follows:
December 31, 2019 | ||
(in millions of Pesos) | ||
Legal Requirement | 162,620 | |
Management Liquidity | 80,267 | |
Total Liquidity | 242,887 |
Legal requirements correspond to the minimum cash requirements for Peso- and foreign currency-denominated assets and liabilities as per the rules and regulations of the Argentine Central Bank.
The assets that can be taken into account for compliance with this requirement are the balances of the Peso- and foreign currency-denominated deposit accounts at the Argentine Central Bank, the liquidity bills and Bote 2020, and the escrow accounts held at the Argentine Central Bank in favor of clearing houses.
Management liquidity, defined as a percentage over deposits and other liabilities, is made up of the following items: balances of checking accounts held by the Argentine Central Bank exceeding minimum cash requirements, Letes, Leliq and placements held by the Argentine Central Bank, overnight placements in banks abroad, net short-term interbank loans (call loans), technical cash and placements at the Argentine Central Bank in excess of the amounts necessary to cover minimum cash requirements.
Capital
Our capital management policy is designed to ensure prudent levels of capital. The following table analyzes our capital resources as of the dates indicated.
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| As of December 31, |
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| 2019 |
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| 2018 |
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| 2017 |
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| (in millions of Pesos, except ratios, multiples and percentages) |
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Shareholders’ Equity attributable to GFG |
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| 113,942 |
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| 92,492 |
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| 99,260 |
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Shareholders’ Equity attributable to GFG as a Percentage of Total Assets |
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| 16.62 |
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| 10.55 |
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| 13.18 |
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Total Liabilities as a Multiple of Shareholders’ Equity attributable to GFG |
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| 4.99 |
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| 8.45 |
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| 6.54 |
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Tangible Shareholders’ Equity (1) as a Percentage of Total Assets |
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| 15.35 |
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| 9.75 |
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| 12.83 |
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1) Tangible shareholders’ equity represents shareholders’ equity minus intangible assets.
For information on our capital adequacy and that of our operating subsidiaries, see Item 4. “Information on the Company”—B.”Business Overview”─”Selected Statistical Information”—“Regulatory Capital”.
Capital Expenditures
In the ordinary course of business, our capital expenditures are mainly related to fixed assets, construction and organizational and IT system development. Generally, our capital expenditures are not significant when compared to our total assets.
For a more detailed description of our capital expenditures in 2019 and our capital commitments for 2020, see Item 4. “Information on the Company”— A. “History and Development of the Company”─”Capital Investments and Divestitures”. For a description of financing of our capital expenditures, see —“Consolidated Cash Flows”.
E. Off-Balance Sheet Arrangements
See Item 5. “Operating and Financial Review and Prospects”─A. “Operating Results”─ “Off-Balance Sheet Arrangements” and “Contractual Obligations”.
F. Contractual Obligations
See Item 5. “Operating and Financial Review and Prospects”─A. “Operating Results”—"Contractual Obligations”.
G. Safe Harbor
These matters are discussed under “Forward-Looking Statements.”
Our ordinary and extraordinary shareholders’ meeting took place on April 28, 2020. The following table sets out the members of our Board of Directors as of that date (all of whom reside in Buenos Aires, Argentina), the positions they hold within Grupo Financiero Galicia, their dates of birth, their principal occupations and the dates of their appointment and on which their current terms will expire. Terms expire when the annual shareholders’ meeting takes place.
Name | Position | Date of Birth | Principal | Member Since | Current Term | |||||
Eduardo J. Escasany | Chairman | June 30, 1950 | Businessman | April 2005 | April 2022 | |||||
Pablo Gutierrez | Vice Chairman | December 9, 1959 | Businessman | April 2003 | April 2022 | |||||
Abel Ayerza | Director | May 27, 1939 | Businessman | September 1999 | April 2021 | |||||
Federico Braun | Director | February 4, 1950 | Businessman | September 1999 | April 2023 | |||||
Silvestre Vila Moret | Director | April 26, 1971 | Businessman | June 2002 | April 2023 | |||||
Daniel Llambías | Director | February 8, 1947 | Businessman | April 2017 | April 2023 | |||||
Pedro A. Richards | Director | November 14, 1952 | Businessman | April 2017 | April 2022 | |||||
Miguel C. Maxwell | Director | December 19, 1956 | Accountant | April 2020 | April 2021 | |||||
Claudia Raquel Estecho | Director | September 24, 1957 | Accountant | April 2019 | April 2021 | |||||
Ricardo Alberto Gonzalez | Alternate Director | June 12, 1951 | Businessman | April 2019 | April 2022 | |||||
Sergio Grinenco | Alternate Director | May 26, 1948 | Banker | April 2003 | April 2021 | |||||
Alejandro Rojas Lagarde | Alternate Director | July 17, 1937 | Lawyer | April 2000 | April 2021 | |||||
Ana María Bertolino | Alternate Director | June 1, 1951 | Lawyer | April 2019 | April 2022 |
The following is a summary of the biographies of the members of our Board of Directors:
Eduardo J. Escasany: Mr. Escasany obtained a degree in economics at the Universidad Católica Argentina. He was associated with Banco Galicia from 1973 to 2002. He was appointed to Banco Galicia’s board of directors in 1975. In 1979, he was elected as the vice chairman and from 1989 to March 21, 2002 he served as the chairman of Banco Galicia’s board of directors and its chief executive officer. He served as the vice chairman of the Argentine Bankers Association from 1989 to 1993 and the chairman of such association from 1993 to 2002. He was chairman of the Board of Directors from April 2002 to June 2002. In April 2005, he was re-elected as member of the Board of Directors and appointed as chairman in 2010. He is also a lifetime trustee and chairman of the Fundación Banco de Galicia y Buenos Aires. He is the chairman of Helena Emprendimientos Inmobiliarios S.A. and an alternate director for RPE Distribución S.A. and Hidro Distribución S.A. Mr. Escasany is Mr. Silvestre Vila Moret’s uncle.
Pablo Gutierrez: Mr. Gutierrez obtained a degree in business administration at the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1985, where he served in different positions. In April 2005, he was appointed to the board of directors of Banco Galicia. Mr. Gutierrez is regular director of Tarjetas Regionales, and Tarjeta Naranja S.A. and a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. He was an alternate director of Grupo Financiero Galicia from April 2003 to April 2010 when he was appointed as vice chairman. In April 2012, he was appointed as the vice chairman of Banco Galicia. Mr. Gutierrez is Mr. Abel Ayerza’s nephew.
Abel Ayerza: Mr. Ayerza obtained a degree in business administration at the Universidad Católica Argentina. He was associated with Banco Galicia from 1966 to 2002. Mr. Ayerza is also second vice chairman of the Fundación Banco de Galicia y Buenos Aires and the managing partner of Cribelco S.R.L., Crisabe S.R.L. and Huinca Cereales S.R.L. He has been a member of the Board of Directors since September, 1999. Mr. Ayerza is the uncle of Mr. Pablo Gutierrez.
Federico Braun: Mr. Braun obtained a degree in industrial engineering at the Universidad de Buenos Aires. He was associated with Banco Galicia from 1984 to 2002. Mr. Braun is also the chairman of Patagonia Logística S.A., Campos de la Patagonia S.A., Estancia Anita S.A., Tarjeta del Mar and S.A. Importadora y Exportadora de la Patagonia; the vice chairman of Asociación Empresaria Argentina and Asociación de Supermercados Unidos. He is a director of Inmobiliaria Financiera “La Josefina” S.A. and an alternate director of Martseb S.A. He is a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. He has been a member of the Board of Directors since September 1999.
Silvestre Vila Moret: Mr. Vila Moret obtained a degree in banking administration at the Universidad Católica Argentina. He was associated with Banco Galicia from 1997 until May 2002. Mr. Vila Moret is also vice chairman of El Benteveo S.A. and Santa Ofelia S.A. He has served as on the Board of Directors since June 2002. He is a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. Mr. Vila Moret is the nephew of Mr. Eduardo J. Escasany.
Daniel Antonio Llambías: Mr. Llambías obtained a degree in national public accounting at the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1964. He was elected as an alternate director of Banco Galicia in September 1997 and served as a director from September 2001 until August 2009, when he was appointed Chief Executive Officer. Mr. Llambías is also a director of Tarjeta Naranja and Tarjetas Regionales and an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. He served as the chairman of ADEBA from April 2016 to April 2017. Mr. Llambías was appointed as a director of Grupo Financiero Galicia in April 2017.
Pedro Alberto Richards:Mr. Richards obtained a degree in economics from the Universidad Católica Argentina. He holds a Master of Science in Management from the Sloan School of Management at the Massachusetts Institute of Technology. He was the director of the National Development Bank. He has been associated with Banco Galicia since 1990. He was a member of the board of directors of Galicia Capital Markets S.A. between 1992 and 1994 and vice chairman of Net Investment between September 2001 and May 2007. Since August 2000, he served as Grupo Financiero Galicia’s managing director and from 2010 as our Chief Executive Officer. Mr. Richards is also Director of Galicia Warrants, and director of Galicia Administradora de Fondos S.A. Mr. Richards was an alternate director of Grupo Financiero Galicia from April 2003 until April 2005, after which he served as a director until April 14, 2010. He was appointed as a director of Grupo Financiero Galicia in April 2017.
Miguel C. Maxwell: Mr. Maxwell obtained a degree in national public accounting at the Universidad de Buenos Aires in 1979 and in 1986 he completed the High Management Program - Instituto de Altos Estudios Empresariales - Buenos Aires (Harvard Business School - University of Navarra). He developed his professional career at Deloitte & Co. S.A. (Argentina, Paraguay y Bolivia) where he entered in 1977, was promoted to Audit Partner in 1986, became Member of the Board from 1999 until May 2005, Audit Business Leader from June 2005 until May 2011 and Chairman and CEO from June 2011 until May 2017. He was also Member of the Board of Deloitte LATCO (15 Latin American countries) from June 2011 until May 2014, CEO of Deloitte LATCO from June 2014 until May 2017 and Member of the Board of Deloitte Touche Tohmatsu from June 2014 until May 2017. Mr Maxwell has substantial experience in audit, serving both domestic clients and subsidiaries of European and American Companies in Argentina. He has more than 35 years of professional experience. Currently he is the Chairman of the Advisory Board of Llorente & Cuenca (LLYC) in Argentina, Member of the Board of José M. Alladio e Hijos S.A. and regular syndic of LIAG Argentina S.A.
Claudia Raquel Estecho:Mrs. Estecho obtained a degree in accounting at the Universidad de Buenos Aires. She has also completed specialized training programs in the areas of Human Resources, Risk and Executive Management at the Universidad Austral. She held different positions at Banco Galicia since 1976 to 2016 in the areas of Finance, Planning and Risk Management. She was appointed as regular director of Grupo Financiero Galicia in April 2019.
Ricardo Alberto Gonzalez: Mr. Gonzalez served in various positions at Banco Galicia between 1973 and December 2009, mainly in the retail division and the credit department. He retired as general manager of the corporate banking division. In April 2019, he was appointed as alternate director of Grupo Financiero Galicia.
Sergio Grinenco: Mr. Grinenco obtained a degree in economics from the Universidad Católica Argentina and a master’s in business administration from Babson College in Wellesley, Massachusetts. He has been associated with Banco Galicia since 1977. He has served as an alternate director of Grupo Financiero Galicia since September 2001 and as the vice chairman from April 2003 to 2011. Mr. Grinenco is also an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. In 2012, he was appointed as the chairman of Banco Galicia.
Alejandro María Rojas Lagarde: Mr. Rojas obtained a degree in law from the Universidad de Buenos Aires. He has held a variety of positions at Banco Galicia since 1963. From 1965 to January 2000, he served as the general counsel office of Banco Galicia. He has served as an alternate director of Grupo Financiero Galicia since 2000. He is also a manager of Rojas Lagarde S.R.L., alternate director of Santiago Salud S.A. and a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires.
Ana María Bertolino: Mrs. Bertolino obtained a degree in law from Universidad de Buenos Aires. She joined Banco Galicia in 1972 and has held positions in Credit and Corporate Banking, until 2009. She was appointed as an alternate director of Grupo Financiero Galicia in April 2019.
Our Board of Directors may consist of between three and nine permanent members. Currently our Board of Directors has nine members. In addition, the number of alternate directors who act in the temporary or permanent absence of a director has been set at four. The regular and alternate directors are elected by the shareholders at our annual general shareholders’ meeting.
Directors and alternate directors are elected for a maximum term of three years. Mr. Sergio Grinenco is also a director of Banco Galicia. In addition, some members of our Board of Directors may serve on the board of directors of any subsidiary.
Five of our directors are members of the families that are the controlling shareholders of Grupo Financiero Galicia.
Our Audit Committee
Grupo Financiero Galicia complies with the provisions set forth by the Capital Markets Law and the regulations set forth by the CNV, which require that companies which make a public offering of shares should form an Audit Committee, and develop a charter with regulations for its operation.
Accordingly, the Board of Directors established an Audit Committee with three members.For fiscal year 2019, Messrs. Enrique Mariano Garda Olaciregui, Claudia Estecho and Daniel Llambías were the members of the Audit Committee, with Enrique Mariano Garda Olaciregui and Claudia R. Estecho considered independent pursuant to the CNV and Nasdaq requirements. On January 13, 2020, the alternate director Mr. Ricardo A. Gonzalez replaced the regular director Mr. Enrique Mariano Garda Olaciregui, who died on December 30, 2019. Mr. Gonzalez is considered an independent member of the Audit Committee pursuant to the CNV and Nasdaq requirements. All members of the Audit Committee are financially literate and have extensive managerial experience. Mr. Daniel Llambías, was the financial expert serving on our Audit Committee during fiscal year 2019. As a consequence of the resignation presented by Mr. Ricardo A. Gonzalez to his position as member of the Audit Committee, the shareholders' meeting held on April 28, 2020, elected Mr. Miguel Maxwell to replace said position. Therefore, the Board of Directors, on the same day, designated Mr. Miguel Maxwell as the new member of the Audit Committee. Mr. Maxwell is independent under the CNV and Nasdaq requirements and have an extensive and recognized managerial experience. According to the CNV rules, the Audit Committee is primarily responsible for (i) issuing a report on the Board of Directors’ proposals for the appointment of the independent auditors and the compensation for the Directors, (ii) issuing a report detailing the activities performed according to the CNV requirements, (iii) issuing the Audit Committee’s annual plan and implementing it each fiscal year, (iv) evaluating the external auditors’ independence, work plans and performance, (v) evaluating the plans and performance of the internal auditors, (vi) supervising the reliability of our internal control systems, including the accounting system, and of external reporting of financial or other information, (vii) following-up on the use of information policies on risk management at Grupo Financiero Galicia’s main subsidiaries, (viii) evaluating the reliability of the financial information to be filed with the CNV and the SEC, (ix) verifying compliance with the applicable conduct rules, and (x) issuing a report on related party transactions and disclosing any transaction where a conflict of interest exists with corporate governance bodies and controlling shareholders. The Audit Committee has access to all information and documentation that it requires and is broadly empowered to fulfill its duties. During 2019, the Audit Committee held eleven meetings.
Our Executive Committee
The Executive Committee was created to assist with the management of the Company's ordinary business and help the Board of Directors in fulfilling its duties. The Committee is composed of between two and five members of the Board of Directors and the President of the Board of Directors acts as its chairman. The duties of this committee include: gathering legal, economic, financial and business information on the Company’s subsidiaries and investee companies; making investment decisions; appointing the Company's first-tier managers; proposing a strategic plan for the Company and its subsidiaries; making annual budget estimates for the Board of Directors, and performing risk assessments. The members of the Executive Committee are Messrs. Eduardo J. Escasany, Pablo Gutiérrez, Abel Ayerza, Federico Braun and Silvestre Vila Moret.
Our Ethics, Conduct and Integrity Committee
The Ethics, Conduct and Integrity Committee was created as part of the Company’s Ethics and Integrity Program, in order to promote respect for norms and regulations, the principles of good conduct and our Code of Ethics. The objective of this Committee, (apart from complying with the duties required to be performed by applicable Argentine laws), is to monitor and review reports of conducts contrary to our Code of Ethics, and to decide whether the conduct under review violated our Code of Ethics; evaluate the evolution and effectiveness of our Ethics and Integrity Program; and plan, coordinate and supervise compliance with the relevant policies approved by this Committee. This committee is formed by two independent Directors, the Chief Financial Officer, the responsible for the Integrity program of the Company and is chaired by one of regular Directors. The members are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, José Luis Ronsini and Adrián Enrique Pedemonte.
Our Nomination and Compensation Committee
The Nomination and Compensation Committee was created to facilitate the analysis and monitoring of several issues based on good corporate governance practices. Said Committee is composed of 5 regular Directors, two of them independent and is chaired by of one independent Director. Even though under Argentine law the appointment of new members to the Board of Directors remains within exclusive power of the shareholders, this Committee assists the Board of Directors in the preparation and design of a succession plan for its members, in particular for the Chairman of the Board and the Chairman of the Audit Committee. This committee reviews the background, training and professional experience of potential candidates to serve the Board and determines their level of compensation in accordance with market standards. The members of the committee are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, Eduardo J. Escasany, Pablo Gutierrez and Federico Braun.
Our Disclosure Committee
We have established a Disclosure Committee in response to the U.S. Sarbanes-Oxley Act of 2002. The main responsibility of this committee is to review and approve controls on the public disclosure of financial and related information, and other procedures necessary that enable our Chief Executive Officer and Chief Financial Officer to provide their certifications for the annual report we file with the SEC. The members of this committee are Messrs. Pedro A. Richards, José Luis Ronsini, Adrián Enrique Pedemonte and Ms. Mariana Saavedra. In addition, at least one of the members of this committee attends all the meetings of our principal subsidiaries’ disclosure committees.
Our Supervisory Committee
Our bylaws provide for a Supervisory Committee consisting of three members who are referred to as syndics (“syndics”) and three alternate members who are referred to as alternate syndics (“alternate syndics”). In accordance with the Corporations Law and our bylaws, the syndics and alternate syndics are responsible for ensuring that all of our actions are in accordance with applicable Argentine law. Syndics and alternate syndics are elected by the shareholders at the annual general shareholders’ meeting. Syndics and alternate syndics do not have management functions. Syndics are responsible for, among other things, preparing a report to shareholders analyzing our financial statements for each year and recommending to the shareholders whether to approve such financial statements. Alternate syndics act in the temporary or permanent absence of a syndic. Currently, there are three syndics and three alternate syndics. Syndics and alternate syndics are elected for a one-year term.
The following table shows the members of our Supervisory Committee. Each of our syndics was appointed at the ordinary shareholders’ meeting held on April 28, 2020. Terms expire when the annual shareholders’ meeting takes place or as set forth below.
Name | Position | Principal Occupation | Current Term Ends | |||
Antonio R. Garcés | Syndic | Accountant | April 2021 | |||
José Luis Gentile | Syndic | Accountant | April 2021 | |||
Omar Severini | Syndic | Accountant | April 2021 | |||
Miguel N. Armando | Alternate Syndic | Lawyer | April 2021 | |||
Fernando Noetinger | Alternate Syndic | Lawyer | April 2021 | |||
| María Matilde Hoenig(1) | Alternate Syndic | Lawyer | April 2021 |
(1) “Ad referendum” of the authorization of the Argentine Central Bank.
The following is a summary of the biographies of the members of our Supervisory Committee:
Antonio Roberto Garcés: Mr. Garcés obtained a degree in accounting from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1959 and with Grupo Financiero Galicia since 2002. In April 1985, he was appointed as an alternate director of Banco Galicia. Subsequently, he was appointed as the vice chairman of Banco Galicia in September 2001, as the chairman of the board of directors of Banco Galicia from March 2002 until August 2002 and then as the vice chairman from August 2002 until April 2003, when he was elected to serve as chairman of Banco Galicia’s board of directors until 2011. From 2003 to 2010 he was the chairman of Grupo Financiero Galicia. From April 2012 until April 2019, Mr. Garcés was appointed as a regular director of Grupo Financiero Galicia. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. Additionally, he is a regular syndic of Galicia Valores and Galicia Warrants.
José Luis Gentile: Mr. Gentile obtained a degree in accounting from the Universidad de Buenos Aires. He has provided services to Grupo Financiero Galicia since 1999 to March 2017. He served as Chief Financial Officer from 2003 to 2017. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2017. Additionally, he is a regular syndic of Galicia Valores and Galicia Warrants, and an alternate syndic of Cobranzas Regionales, Tarjeta Naranja, and of other subsidiaries of Banco Galicia and Grupo Financiero Galicia.
Omar Severini: Mr. Severini obtained a degree in accounting from the Universidad de Belgrano and a degree in finance with a concentration in capital markets from UCEMA. He has been associated with Banco Galicia since 1978 and served in positions responsible for the regular audit from 1986 to 2009. He served as Internal Auditor Manager to Banco Galicia between 2009 and 2017. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2018. Additionally, he is a regular syndic of Galicia Valores, Galicia Warrants, Tarjetas Regionales, Tarjeta Naranja, and of other subsidiaries of Banco Galicia and Grupo Financiero Galicia.
Miguel Norberto Armando:Mr. Armando obtained a law degree from the Universidad de Buenos Aires.He was first elected as an alternate syndic of Banco Galicia from 1986 until 2017. He also acted as an alternate syndic of Grupo Financiero Galicia between 1999 and January 2009 at which point he became a regular syndic until April 2009 and was reelected as an alternate syndic of Grupo Financiero Galicia until April 2018. He was elected as an alternate syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. He is the chairman of Arnoar S.A. Mr. Armando is also a regular syndic of EBA Holding S.A., Electrigal S.A. and an alternate syndic of Galicia Valores, Galicia Seguros, Sudamericana Holding, Marin and Finisterra, among others.
Fernando Noetinger:Mr. Noetinger obtained a law degree from the Universidad de Buenos Aires.He has been associated with Banco Galicia since 1987. He was and has been an alternate syndic of Grupo Financiero Galicia from September 1999 to June 2002 and from April 2006 to date.Mr. Noetinger is also chairman of Villa Rosa S.A. and Doña Ines S.A., an alternate director of Arnoar S.A., and an alternate syndic of EBA Holding S.A., Electrigal S.A., Tarjetas Regionales, Galicia Warrants, Galicia Valores, Banco Galicia, Galicia Retiro, Galicia Seguros, and Sudamericana Holding, among others.
Maria Matilde Hoening: Mrs. Hoening obtained a law degree from the Universidad de Buenos Aires. She has been associated with Banco Galicia since 1971 and served in different positions until 2009. She was appointed as an alternate syndic of Banco Galicia and Grupo Financiero Galicia in 2020.
Management of Grupo Financiero Galicia
Our organizational structure consists of the Chief Executive Officer who reports to the Board of Directors, and the Chief Financial Officer who reports to the Chief Executive Officer and is in charge of the Financial and Accounting Division.
The Chief Executive Officer’s primary responsibilities consist of implementing the policies defined by the Board of Directors, as well as providing recommendations to the Board of Directors regarding future plans, budgets and company organization. He is also responsible for supervising the Financial and Accounting Division and assessing the attainment of performance goals of Grupo Financiero Galicia. The Chief Executive Officer also participates in meetings of the Board of Directors of the Company and certain subsidiaries.
Our Chief Executive Officer is Mr. Pedro A. Richards, please see “─ Our Board of Directors”.
Our Chief Financial Officer is Mr. José Luis Ronsini. Mr. Ronsini obtained a degree in accounting from the Universidad Católica Argentina. He holds a Master in Finance from the University of CEMA, and attended the Senior Management Program at the Universidad de San Andrés. He has been associated with Banco Galicia since 2001. He previously served as the Chief Credit Risk auditor, responsible for subsidiaries, Tarjetas Regionales, and Galicia Administradora de Fondos S.A. Mr. Ronsini has served as General Accountant of Banco Galicia since 2012.
The Financial and Accounting Division is mainly responsible for the assessment of investment alternatives, thus suggesting whether to invest or withdraw Grupo Financiero Galicia’s positions in different companies or businesses. It also plans and coordinates Grupo Financiero Galicia’s administrative services and financial resources in order to guarantee its proper management. This division also aims at meeting requirements set by several controlling authorities, managing the Integrity plan, complying with information and internal control needs and budgeting purposes. Furthermore, it includes functions aimed at planning, preparing, coordinating, controlling and providing financial information to the stock exchanges where Grupo Financiero Galicia’s shares are listed, regulatory bodies and both domestic and international investors and analysts. It facilitates the provision of materials and responses to questions sent by shareholders and investors in general through a specifically designed “contact us”, located in our web page.
Board of Directors of Banco Galicia
At the ordinary shareholders’ meeting held on April 28, 2020, the size of Banco Galicia’s board of directors was set at six members and three alternate directors. The following table sets forth the members of Banco Galicia’s board of directors as of April 28, 2020, all of whom are residents of Buenos Aires, Argentina, the position currently held by each of them, their dates of birth, their principal occupations, the dates of their appointment and the year in which their current terms will expire. The business address of the members of the Banco Galicia’s board of directors is Tte. General J. D. Perón 430, 24th floor (C1038AAI) Buenos Aires, Argentina.
Name | Position | Date of Birth | Principal Occupation | Member Since | Current Term Ends | |||||||
Sergio Grinenco | Chairman of the | May 26, 1948 | Banker | April 2012 | April 2023 | |||||||
Raúl Héctor Seoane | Vicechairman | July 18, 1953 | Economist | April 2012 | April 2023 | |||||||
Guillermo J. Pando | Secretary Director | October 23, 1948 | Banker | April 2003 | April 2023 | |||||||
María Elena Casasnovas (1) | Director | May 10, 1951 | Lawyer | April 2016 | April 2022 | |||||||
Juan Carlos L’Afflitto | Director | September 15, 1958 | Accountant | April 2016 | April 2022 | |||||||
Gastón Bourdieu | Director | August 31, 1956 | Agricultural Administration | April 2018 | April 2021 | |||||||
Ignacio A. González (2) | Alternate Director | April 23, 1944 | Accountant | April 2018 | April 2023 | |||||||
Verónica Lagos Mármol (2)(3) | Alternate Director | November 14, 1972 | Economist | April 2020 | April 2023 | |||||||
Augusto R. Zapiola Macnab | Alternate Director | June 27, 1947 | Economist | April 2013 | April 2022 | |||||||
(1) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Mrs. Casasnovas is an independent director. Mrs. Casasnovas is also an independent director in accordance with the Nasdaq rules.
(2) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Messrs. Gonzalez and Lagos Mármol are independent alternate directors. We would replace the independent director in case of vacancy. Messrs. González and Lagos Mármol are also independent directors in accordance with the Nasdaq rules.
(3) “Ad referendum” of the authorization of the Argentine Central Bank.
The following are the biographies of the members of the board of directors of Banco Galicia:
Sergio Grinenco:See “—Our Board of Directors”.
Raúl Héctor Seoane: Mr. Seoane obtained a degree in economics from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1988. Mr. Seoane was first elected as an alternate director of Banco Galicia from 2005 until December 2011, and in April 2012 was elected as a director. He is also a vice chairman of Distrocuyo S.A. and an alternate trustee of Fundación Banco de Galicia y Buenos Aires.
Guillermo Juan Pando:Mr. Pando has been associated with Banco Galicia since 1969. He was first elected as an alternate director of Banco Galicia from September 2001 until June 2002, and in April 2003 he was elected as a director. He is also the chairman of Santiago Salud S.A. and Distrocuyo S.A., vice chairman of Electrigal S.A., and an alternate trustee of Fundación Banco de Galicia y Buenos Aires.
María Elena Casasnovas:Mrs. Casasnovas obtained a degree in law from the Universidad Católica Argentina. She completed the Program for High Management at Universidad Torcuato Di Tella and the Senior Management Program at Universidad San Andrés. She has been associated with Banco Galicia since 1972. In April 2016, she was elected as a director.
Juan Carlos L’Afflitto:Mr. L’Afflitto obtained a degree in national public accounting at the Universidad de Buenos Aires. He worked as advisor and accountant at Morgan, Benedit y Asociados and until 1990 he was a professor at the Universidad Católica Argentina. He has been associated with Banco Galicia since 1986. In April 2016, he was elected as a director.
Gastón Bourdieu: Mr. Bourdieu obtained a degree in agricultural administration from the Universidad Argentina de la Empresa. He has been associated with Banco Galicia from 1981 to 2017. He was appointed as a director of Banco Galicia in April 2018. He is also a director of Maradona S.A.
Ignacio Abel González: Mr. González obtained a degree in national public accounting from the Universidad de Buenos Aires and a master in Auditing at Drew University, New Jersey. Previously, he served as a Member of the International Committee of Finance & Value Sharing, PricewaterhouseCoopers. He was appointed as director of Banco Galicia in April 2010 and he was elected as an alternate director in April 2018. He is also director of IDEA and syndic of Sociedad Anónima La Nación, Nuevos Medios La Nación, Publirevistas, Sociedad Anónima Importadora y Exportadora de la Patagonia, and the founder and president of P.O.D.E.R (Polo de Desarrollo Educativo Renovador).
Verónica Lagos Mármol: Mrs. Lagos Mármol obtained a degree in economics at the Universidad San Andrés. She holds a Master in Finance from Universidad CEMA. She joined Banco Galicia in 1995 at Planning and Strategic Analysis. Then she held positions in Investment Banking until 2012. She served as managing director of Capital Management Tarsus until 2016.
Augusto Rodolfo Zapiola Macnab: Mr. Zapiola Macnab obtained a degree in economics from the Pontificia Universidad Catolica Argentina. He has been associated with Banco Galicia from June 1978 until September 2002. He was elected as an alternate director of Banco Galicia in April 2013. He was elected as an alternate director on the Board of Directors of Grupo Galicia in April 2015.
Functions of the Board of Directors of Banco Galicia
Banco Galicia’s board of directors may consist of three to nine permanent members.In addition, there can be one or more alternate directors who can act during the temporary or permanent absence of a director. As of the date of this annual report, none of the directors were also employees.
The Board of Directors meets formally at least twice a week and informally every day and is responsible for the general administration of Banco Galicia, making all the decisions required for that purpose.
Members of the Bank’s Board of Directors serve in the following committees:
Human Resources and Governance Committee: This committee is comprised of four regular Directors, the General Manager and the Human Resources Area Manager. The Committee, is subdivided into the Nominating Committee and the Compensation Committee. The Nomination Sub-Committee is comprised of four regular Directors (one of them must be an independent Director), the General Manager and the Human Resources Manager. It is responsible for nominating successors for the roles of the General Manager and Area Managers and analyzing and setting the compensation to be paid to the General Manager and Area Managers. At the request of the shareholders, this sub-committee may recommend candidates for the Board of Directors. On the other hand, the Compensation Committee is comprised of three Directors, the General Managers and the Human Resources Area Manager. It is responsible for submitting, analyzing and suggesting the level of compensation to be paid to the Board of Directors, the General Manager and Area Managers, and for monitoring the performance of Department Managers and Area Managers. The Human Resources and Governance Committee meets at least once every two- months, or whenever there are issues that require urgent treatment. Its resolutions are summarized in writing in minutes and numbered chronologically.
Risk and Capital Allocation Committee: This committee is comprised of six regular Directors, the General Manager, and the Area Managers of Risks and Planning. It is responsible for approving and analyzing capital allocation, setting up risk policies and monitoring risks for the Bank. It meets at least once every two-months. Its resolutions are summarized in writing in minutes.
High Credits Committee:this committee is comprised of five regular Directors, the General Manager, and the Area Managers of Risks and Wholesale Banking. Also, when deemed necessary, the Committee may convene Directors and/or Officials from different areas of the Bank. It is responsible for approving and subscribing the qualifications and awards of operations of customers and high-risk groups. It meets at least once a week. The approved operations will be recorded in chronologically numbered forms and will be signed at least by a Director, the General Manager and the Risk Area Manager.
Low Credits Committee:this committee is comprised of three regular Directors, the General Manager, and the Risk Area Manager. Also, when deemed necessary, the Committee may convene Officials from different areas of the Bank. It is responsible for approving and subscribing the qualifications and awards of operations of customers and high-risk groups. It meets at least biweekly. The approved operations will be recorded in chronologically numbered forms and will be signed at least by a Director, the General Manager and the Risk Area Manager.
Systems Committee: this committee is comprised of four regular Directors, the General Manager, and the Integrated Corporate Services Area Manager. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank. It is responsible for supervising and approving new systems development plans and their budgets; supervising the budgetary control of developments; approving the general designs of the systems structure, the main processes, and systems to be implemented; and supervising the quality of the services, in accordance with the policies established by the Board of Directors of Banco Galicia. The Systems Committee meets at least once every three months, and whenever there are issues that require urgent treatment. Its resolutions are summarized in writing in minutes.
Audit Committee: In accordance with the regulations of the Argentine Central Bank, the Bank has an Audit Committee composed of two members of the Board of Directors and the head of the Internal Audit. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank. The Committee is responsible for assisting the Board of Directors in controlling the Bank and its controlled and investee companies, in order to reasonably ensure the following objectives: effectiveness and efficiency of operations; reliability of accounting information; compliance with applicable laws and regulations; and compliance with the objectives and strategy set by the board. The Committee meets at least once a month. Its resolutions are recorded in minutes which are transcribed in initialed books.
Money Laundering and Terrorist Financing Prevention and Control Committee: this committee is comprised of five regular Directors, the General Manager, the Manager of Assets Laundering Prevention and Compliance, the Risk Area Managers, the Financial Banking, Wholesale Banking, Retail Banking and Integrated Corporate Services Managers. The Financial Banking Area Manager is the Official with competence in financial intermediation operations. The Syndics may be invited to attend any of the meetings convened by this Committee. The Money Laundering and Terrorist Financing Prevention and Control Committee is the body in charge of planning, coordinating and ensuring compliance with the policies established in this area, upon approval by the Board of Directors. The Committee has a regime of meetings of at least once every three months and its decisions must be recorded in an initialled minutes book.
Disclosure Committee: this committee is comprised of three regular Directors, the General Manager and the Planning Area Manager. The Syndics may be invited to attend any of the meetings convened by this Committee. In the meetings held, a member of the Committee created for such purpose by Grupo Financiero Galicia S.A, shall also be present. This Committee was created to comply with the provisions of the US Sarbanes-Oxley Act. The Committee meets at least every six months or whenever there are issues requiring to be addressed. Its resolutions are summarized in writing in minutes and numbered chronologically.
Asset and Liability Committee (“ALCO”: Asset and Liability Committee):this committee is comprised of three regular Directors, the General Manager, the Managers of the Retail Banking, Wholesale Banking, Financial Banking, Risks and Planning Areas. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank and its subsidiaries. It is responsible for analyzing the collection of resources and placement in different assets, monitoring and controlling liquidity gaps, interest rates and currencies and managing such gaps. The Committee meets at least one a month. Its resolutions are recorded in writing in minutes and numbered chronologically.
Strategy and New Businesses Committee:this committee is comprised of three regular Directors, the General Manager and the Planning and Risk Area Managers. It is responsible for analyzing new business. It meets at least once a year, and whenever there are issues requiring to be addressed urgently. Its resolutions are summarized in writing in minutes and numbered chronologically.
Liquidity Crisis Committee: this committee is comprised of three regular Directors and the General Manager. Likewise, the Committee may convene those officials whose participation is deemed appropriate in relation to the issues to be addressed. It is responsible for assessing situations of liquidity crisis and deciding the actions to be implemented aimed at its resolution. It will meet when the Chairman of the Board of Directors summons it and will meet permanently until the end of the liquidity crisis. Its resolutions are summarized in writing in minutes and numbered chronologically.
Profit and Loss Report Committee: this committee is comprised of six regular Directors, the General Manager and the Planning Area Manager. It is responsible for monitoring the management and the income and evaluating macroeconomic global situations. It meets at least quarterly. Its resolutions are summarized in writing and numbered chronologically.
Compliance Committee: this committee is comprised of five regular Directors, the General Manager, the Risk Area Manager and the Manager of Assets Laundering Prevention. Also, when deemed necessary, the Committee may convene other Directors and Officials from different areas of the Bank. It is in charge of promoting respect for the rules, principles of good conduct, the Integrity Program and the Bank's Code of Ethics, and mitigating the non-compliance risk, through the definition of policies, the establishment of controls and reports in the best interest of the Bank, its employees, shareholders and customers. It meets at least once every three months, and whenever there are issues requiring to be addressed urgently. Also, when deemed necessary, the Committee may convene other Directors and Officials from different areas of the Bank. Its resolutions will be summarized in writing and numbered chronologically.
Financial Services User Protection Committee: this committee is comprised of two regular Directors, the Money Laundering Prevention and Compliance Manager, the Operational Risk Manager, the Legal Advice Manager and the Experience Manager. It is responsible for monitoring the activities carried out by managerial levels and authorities involved in the internal process of user protection, in order to properly comply with legal and regulatory standards. It meets at least once every three months, or more frequently whenever there are issues requiring to be addressed urgently. Also, when deemed necessary, the Committee may convene other Directors, the General Manager and Officials from different areas of the Bank. Its resolutions are summarized in writing and numbered chronologically. The Board of Directors is regularly informed of the decisions taken by the Committee.
Information Assets Protection Committee: this committee is comprised of two regular Directors, the Risk Area Manager, the System Manager, the Audit Manager and the Information Security Manager. It is responsible for generating/having an agile and professional environment for the definition of and decision-making regarding strategies/policies related to the information security of the Bank. It meets at least once every three months, or more frequently whenever there are issues requiring to be addressed urgently. Its resolutions are summarized in writing and numbered chronologically
These committees provide written minutes on a monthly basis to the Board of Directors.
Banco Galicia’s Supervisory Committee
Banco Galicia’s bylaws provide for a Supervisory Committee consisting of three syndics and three alternate syndics. According to the General Companies Act and the Argentine Central Bank regulations, the responsibility of the Syndics of the Supervisory Committee, both regular and alternate, responsibility is to ensure that all of the Bank’s actions are in accordance with applicable Argentine law. The Syndic and Alternate Syndic do not participate in the business administration of the Bank, and do not have and cannot have managerial functions. They are responsible, among other things, for preparing a report to the shareholders regarding the Bank’s financial statements of each fiscal year. The Syndic and Alternate Syndic are appointed by the shareholders at their Annual Ordinary Meeting, for one-year periods, and may be reelected. The Alternate Syndics act as Regular Syndics in case of temporary or permanent absence of the Syndics.
The table below shows the composition of Banco Galicia’s Supervisory Committee as they were re-elected by the annual shareholders’ meeting held on April 28, 2020.
Name | Position | Principal Occupation | Current Term Ends | |||
Omar Severini | Syndic | Accountant | April 2021 | |||
Jose Luis Gentile | Syndic | Accountant | April 2021 | |||
Antonio R. Garces (1) | Syndic | Accountant | April 2021 | |||
Fernando Noetinger | Alternate Syndic | Lawyer | April 2021 | |||
Miguel N. Armando | Alternate Syndic | Lawyer | April 2021 | |||
María Matilde Hoenig(1) | Alternate Syndic | Lawyer | April 2021 |
(1) “Ad referendum” of the authorization of the Argentine Central Bank.
For the biographies of Messrs., Omar Severini, José Luis Gentile, Antonio R. Garces, Fernando Noetinger and Miguel N. Armando and María Matilde Hoening, see “—Our Supervisory Committee”.
Banco Galicia’s Executive Officers
On October 7, 2015, Mr. Fabián Enrique Kon was appointed as the Chief Executive Officer of Banco Galicia. The Chief Executive Officer is responsible for implementing the strategic goals established by Banco Galicia’s Board of Directors and coordinating with the Managers of the Bank’s Divisions. Mr. Kon reports to the Board of Directors.
Fabián Enrique Kon: Mr. Kon obtained a degree in national public accounting from the Universidad de Buenos Aires. He has worked at Pistrelli, Diaz y Asociados, Accenture, Exolgan Container Terminal and Tradecom, in managerial positions. From 2006 to February 2014, he served as Galicia Seguros’ Chief Executive Officer and was appointed as Banco Galicia’s retail banking manager in March 2014. Mr. Kon is also the chairman of Sudamericana Holding, vice chairman of Tarjetas Regionales and director of Tarjeta Naranja.
As of the date of this annual report, the following divisions and department managers report to Banco Galicia’s Chief Executive Officer:
Division | Manager | |
Wholesale Banking | Marcelo Iraola | |
Retail Banking | German Alejandro Ghisoni | |
Financial Banking | Pablo María León | |
Risk Management | Diego Rivas | |
Comprehensive Corporate Services | María Marcela Fernie | |
People | Rafael Pablo Bergés | |
Planning | Bruno Folino | |
Customer Experience | Flavio Dogliolo |
Wholesale Banking Area Management: It is responsible for obtaining a broad segment vision and, in turn, a greater alignment with the current situation and future business perspectives. Its main responsibilities are to design, plan and implement the vision, strategies, policies and objectives for the Wholesale Banking business and for each of the customers segments and products, as well as to define and control business objectives, with the purpose of ensuring that they are adjusted competitively to the demands of the industry and to the strategic objectives of the Bank, guaranteeing the volume, profitability, quality and customer satisfaction, within the framework of the established risk levels. The following departments report to this division: Agribusinesses, Corporate Banking, Investment Banking and Capital Market, Corporate Banking, Collections and Payments, Wholesale Lending, Foreign Trade and Transactional Services and Wholesale Business Planning.
Retail Banking Area Management: It is responsible for facilitating the decision-making process, improving the commercial effectiveness of the retail banking sector and improving the customer focus. Its main responsibilities are to design, plan and implement the vision, strategies, policies and objectives for the Retail Banking business and for each of the customers segments and distribution channels, as well as to define and control business objectives, with the purpose of ensuring that they are intune with the competitive demands of the industry and the strategic
objectives of the Bank, guaranteeing volume, profitability, quality and customer satisfaction, within the framework of the established risk levels. The following departments report to this division: Every Day Banking, Products, Brand Experience, Private Banking, Branches, Customers Contact Center, Segment + Retail and Retail Banking Planning.
Financial Banking Area Management: It is responsible for administering the financial position of the Bank, negotiating rates, funds, incentives and campaigns with the different areas, and promoting the regulatory, technical and informative support in the management of assets and liabilities, in order to guarantee the control of the liquidity, rate, currency and industry risks, and compliance with current policy and legal regulations. It is also responsible for planning, proposing and implementing the strategy for the development and maintenance of commercial relations with international banks, international organizations, international investment funds and binational chambers with the purpose of consolidating the bank's image in international industries and guaranteeing the smooth development of the international business in accordance with the growth and profitability objectives set by the organization. The following departments report to this division Trading & Global Markets, Commercial, Financial Institutions, Investment Products and Global Custody, and Public Sector.
Risks Area Management: It is responsible for maintaining an effective risk management system in compliance with the best practices developed globally and optimizing the credit process in order to provide a better service to customers. It is responsible for actively and comprehensively monitoring and managing the different risks of the Bank and its subsidiaries. It is responsible for ensuring compliance with the policies, qualification and fraud prevention processes, thus guaranteeing the quality of the retail portfolio; designing and auditing mass decision tools; making decisions on the use/development of credit scoring models; conducting alignment actions to retail commercial strategies; and accompanying the business area of the retail segment, making recommendations regarding business opportunities, according to the strategic vision and policies, both external and internal, acting as the Bank's first line of defense for the retail banking segment. The following departments report to this division: Strategic Risk Management, Retail Credits, Wholesale Credits, Credit Recovery, Financial Risk and Capital Management, Analytical Solutions Center and Information Security.
Integrated Corporate Services Area Management: It is responsible for integrating all the operations of the Bank in a single area, in order to improve the efficiency of operational processes. The following departments report to this division: Operations, Systems, Corporate Infrastructure, Branch Offices Infrastructure, and Interbanking Fee-Collecting System (Sistema de Cobros Interbancarios, SCI) Planning.
People Area Management: It is responsible for incorporating and developing new talents, fostering a framework that motivates employees and maintaining an excellent working environment. The following departments report to this division: Design and Innovation, Corporate Governance and Compensation, Cultural Transformation, Administration and Human Resources Management, Persons Advice, Sustainability and Labor Relations and Corporate Security.
Planning Area Management: It is responsible for planning, coordinating and controlling the development and maintenance of budgeting, planning, accounting, and tax activities, in order to ensure that the management has the information needed for the decision-making processes, management control, and the satisfaction of the Bank's information requirements, as well as to ensure compliance with the information requirements that shall enable the Bank to obtain long-term, strategic sources of financing. It is also responsible for coordinating, planning and monitoring compliance with the strategy of liquidity, interest rates and currency gaps, within the limits of the established policies, making proposals to the Assets and Liabilities Committee (ALCO) regarding the management of such gaps in order to maximize income within the limits of policies. The following departments report to this division: Accounting, Tax Advice, Management Control, Research and Strategic Planning, Assets and Liabilities Management, Strategic Supply, Legal Advice and Institutional Relations.
Customer Experience Area Management: It is responsible for conducting and carrying out the strategy and vision of being a Customer Experience Bank, in order to achieve a strong competitive and differentiating advantage in the financial and services industry, across the entire organization, with high impact on the Bank’s and shareholders’ income. The following departments report to this division: Customer Trips, Excellence Center and Transformation Offices.
Department | Manager | |
Internal Audit | Claudio Scarso | |
Compliance and Prevention of Money Laundering | Teresa del Carmen Piraino |
Internal Audit Departmental Management: Its mission is to evaluate and monitor the efficiency, adequacy and defectiveness of the internal control systems, in order to ensure compliance with applicable laws and regulations.
Money Laundering Prevention and Compliance Departmental Management: It is responsible for coordinating and supervising compliance with the policies established by the Board of Directors regarding money laundering and terrorist financing control and prevention, ensuring compliance with current regulations and international standards. It is also responsible for planning and evaluating the information used by different Area Managements to control compliance with regulations and policies and that will be part of the reports issued by the Management to the rest of the organization and some control bodies of national and international level, and for systematically evaluating and controlling the operational risks assumed by the Bank to ensure that there are policies, procedures and adequate systems to minimize them.
The following are the biographies of Banco Galicia’s senior executive officers mentioned above:
Marcelo Iraola: Mr. Iraola obtained a degree in law from the Universidad de Buenos Aires. He completed the Program for Executive Development at Instituto Argentino de Empresas and a business management program at the Universidad de San Andres. He has been associated with Banco Galicia since 1988. He is also the chairman of Galicia Warrants, a director of Sudamericana Holding S.A. and an alternate director of Tarjetas Regionales.
Germán Alejandro Ghisoni: Mr. Ghisoni obtained a degree in business management from the Universidad Católica Argentina. He completed the Program for Executive Development at Instituto Argentino de Empresas, the Strategic Management in Banking Program at INSEAD and the Customer Centric Organitatios at Kellogg School of Management. He has been associated with Banco Galicia since 1995. He is also a director of Sudamericana Holding and an alternate director of Tarjetas Regionales and Tarjeta Naranja.
Pablo Maria Leon: Mr. Leon obtained a degree in finance from the Universidad de Palermo and two executive development programs at Instituto Argentino de Empresas and IMD in Lausanne, Switzerland. He has been associated with Banco Galicia since 1987. He is also the chairman of Galicia Valores and director of Argenclear S.A.
Diego Rivas: Mr. Rivas obtained a degree in business administration from the Universidad Argentina de la Empresa. He also completed a postgraduate degree in finance at the CEMA and management development programs at IMD in Lausanne, Switzerland, as well as a postgraduate degree in Risk Management at the Wharton School at University of Pennsylvania. Mr. Rivas has been associated with Banco Galicia since 1987. In May 2016, he was appointed Risk Control Area Manager of Banco Galicia. Mr. Rivas is also vice chairman of Ondara and an alternate director of Tarjeta Naranja.
Maria Marcela Fernie: Ms. Fernie obtained a degree in economics from the Universidad Católica Argentina. She has been associated with Banco Galicia since 2011. She is a director of COELSA and an alternate director of Tarjetas Regionales and Tarjeta Naranja.
Rafael Pablo Bergés: Mr. Bergés obtained a degree in industrial engineering from Universidad de Buenos Aires. He has been associated with Banco Galicia since August 2010. Prior to such time, he worked at Techint and at a several multinational companies in managerial positions. From 1998 to 2009, he was vice president of the Human Resources Division of Grupo Telefónica.
Bruno Folino: Mr. Folino obtained an accounting degree from the Universidad de Buenos Aires. He completed a post-graduate degree in Tax & Legal at the Universidad Austral and a Master in Science of Management from GSB Stanford University. He started his career as an auditor at Price Waterhouse & Co. before moving to the Tax & Legal Department. He has been associated with Banco Galicia since 1997 as Tax Manager and Planning Manager. In 2012, he was appointed Planning Manager.
Flavio Dogliolo: Mr. Dogliolo obtained a degree in business administration from the Universidad Católica Argentina. He received an MBA from the Universidad Austral. He was the manager of means of payments and automatic banking at Banco Bansud S.A., manager of quality and service productivity at Banco Río de la Plata S.A. and he worked in marketing database and commercial planning at Siembra AFJP S.A. He has been associated with the Bank since 1998.
Claudio Scarso: Mr. Scarso obtained a degree in systems engineering from the Universidad Argentina de la Empresa. He has been associated with Banco Galicia since 1995.
Teresa del Carmen Piraino: Ms. Piraino obtained a degree in accounting from the Universidad Argentina de la Empresa. She completed a post-graduate degree in Anti-Money Laundering and Financial Crime Prevention from the Universidad de Buenos Aires. She has been associated with Banco Galicia since 1992.
Compensation
Compensation of Our Directors
Compensation for the members of the Board of Directors is considered by the shareholders at the shareholders’ meeting once the fiscal year has ended. Directors are paid an annual fee based on the functions they carry out and they may receive partial advance payments during the year. At the ordinary shareholders’ meeting held on April 28, 2020 the compensation for the Board of Directors was set at Ps.85,824,936 for the year ended December 31, 2019. For a description of the amounts to be paid to the board of directors of Banco Galicia, see “– Compensation of Banco Galicia’s Directors and Officers” below.
We do not maintain a stock-option, profit-sharing or pension plan for the benefit of our directors.
We do not have a policy establishing any termination benefits for our directors.
Compensation of Banco Galicia’s Directors and Officers
Banco Galicia’s board of directors establishes the policy for compensation of Banco Galicia’s personnel. Banco Galicia’s managers receive a fixed compensation. Six directors are not employees of Banco Galicia. These non-employee directors receive a fixed compensation, provided that payments do not exceed the standard levels of similar entities in the Argentine financial market, a provision that is applicable to managers as well. The officers’ compensation regime includes the possibility of acquiring a retirement insurance policy. Banco Galicia does not maintain stock-option plans or pension plans or any other retirement plans for the benefit of its directors and managers. Banco Galicia does not have a policy establishing any termination benefits for its directors.
At the ordinary shareholders’ meeting held on April 28, 2020, the compensation for the directors of Banco Galicia was set for a total amount of Ps.32.6 million for the year ended December 31, 2019.
Nasdaq Corporate Governance Standards
Pursuant to Nasdaq Marketplace Rule 5615(a) (3), a foreign private issuer may follow home country corporate governance practices in lieu of the requirements of the Rule 5600 Series, provided that the foreign private issuer complies with certain sections of the Rule 5000 Series, discloses each requirement that it does not follow and describes the home relevant country practice followed in lieu of such requirement. The requirements of the Rule 5000 Series and the Argentine corporate governance practice that we follow in lieu thereof are described below:
Rule 5250 (d) – Distribution of Annual and Interim Reports. In lieu of the requirements of Rule 5250 (d), we follow Argentine law, which requires that companies make public a Spanish language annual report, including annual audited consolidated financial statements, by filing such annual report with the CNV and the BASE, within 70 calendar days of the end of the company’s fiscal year. Interim reports must be filed with the CNV and the BASE within 42 calendar days of the end of each fiscal quarter. The BASE publishes the annual reports and interim reports in the BASE bulletin and makes the bulletin available for inspection at its offices. In addition, our shareholders can receive copies of our annual reports and any interim reports upon such shareholders’ request. English language translations of our annual reports and interim reports are furnished to the SEC. We also post the English language translation of our annual reports and quarterly press releases on our website. Furthermore, under the terms of the Second Amended and Restated Deposit Agreement, dated as of June 22, 2000, among us, The Bank of New York, as depositary, and owners of ADSs issued thereunder, we are required to furnish The Bank of New York with, among other things, English language translations of our annual reports and each of our quarterly press releases. Annual reports and quarterly press releases are available for inspection by ADRs holders at the offices of The Bank of New York located at 240 Greenwich Street, New York, New York. Finally, Argentine law requires that 20 calendar days before the date of a shareholders’ meeting, the board of directors must provide to the shareholders, at the company’s executive office or through electronic means, all information relevant to the shareholders’ meeting, including copies of any documents to be considered by the shareholders (which includes the annual report), as well as proposals of the company’s board of directors.
(ii) Rule 5605 (b) (2) – Executive Sessions of Independent Directors. In lieu of the requirements of Rule 5605 (b) (2), we follow Argentine law which does not require independent directors to hold regularly scheduled meetings at which only such independent directors are present (i.e., executive sessions). Our Board of Directors as a whole is responsible for monitoring our affairs. In addition, under Argentine law, the board of directors may approve the delegation of specific responsibilities to designated directors or non-director managers of the company. Also, it is mandatory for public companies to form a supervisory committee (composed of syndics), which is responsible for monitoring the legality of the company’s actions under Argentine law and the conformity thereof with its bylaws.
(iii) Rule 5605 (d) – Compensation of Officers. In lieu of the requirements of Rule 5605 (d), we follow Argentine law, which does not require companies to form a compensation committee comprised solely of independent directors. It also is not required under Argentine law that the compensation of the Chief Executive Officer and all other executive officers be determined by either a majority of the independent directors or a compensation committee comprised solely of independent directors. Under Argentine law, the board of directors is the corporate body responsible for determining the compensation of the Chief Executive Officer and all other executive officers, so long as they are not directors. In addition, under Argentine law, the audit committee shall give its opinion about the reasonableness of management’s proposals on fees and option plans for directors or managers of the company. Finally, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2).
(iv) Rule 5605 (e) (1) – Nomination of Directors. In lieu of the requirements of Rule 5605 (e) (1), we follow Argentine law which requires that directors be nominated directly by the shareholders at the shareholders’ meeting and that they be selected and recommended by the shareholders themselves. Under Argentine law, it is the responsibility of the ordinary shareholders’ meeting to appoint and remove directors and to set their compensation. However, the Company, based on the best practices in corporate governance has created a Nomination and Compensation Committee, chaired by an independent Director and composed by 5 members of the Board of Directors. Said Committee aims to assist the Board of Directors to prepare a proposal to nominate candidates to fill its positions, to prepare and design a succession plan and to determine its compensation levels. In addition, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2).
(v) Rule 5605 (c) (1) – Audit Committee Charter. In lieu of the requirements of Rule 5605 (c) (1), we follow Argentine law, which requires that audit committees have a charter but does not require that companies certify as to the adoption of the charter nor does it require an annual review and assessment thereof. Argentine law instead requires that companies prepare an annual report describing its activities and propose a plan or course of action with respect to those matters, which are the responsibility of the company’s audit committee. Such plan or course of action could, at the discretion of our audit committee, include a review and assessment of the audit committee charter.
(vi) Rule 5605 (c) (2) – Audit Committee Composition. Argentine law does not require, and it is equally not customary business practice in Argentina, that companies have an audit committee comprised solely of independent directors. Argentine law instead requires that companies establish an audit committee with at least three members comprised of a majority of independent directors as defined by Argentine law. Since fiscal year 2017, the Audit Committee is comprised of three Directors, two of them independent pursuant to the definition of independence in Rule 10 A-3 (b) (1) and the Argentine law, one of which the Board of Directors determined to be a financial expert. In addition, we have a supervisory committee (“comisión fiscalizadora”) composed of three syndics, who are responsible for monitoring the legality, under Argentine law, of the actions of our Board of Directors and the conformity of such actions with our bylaws.
(vii) Rule 5620 (c) – Quorum. In lieu of the requirements of Rule 5620 (c), we follow Argentine law and our bylaws, which distinguish between ordinary meetings and extraordinary meetings and require, in connection with ordinary meetings, that a quorum consist of a majority of stock entitled to vote. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, constitute a quorum and resolutions may be adopted by an absolute majority of the votes present. Argentine law and our bylaws require, in connection with extraordinary meetings, that a quorum consist of 60% of the stock entitled to vote. However, if such quorum is not present at the first meeting, our bylaws provide that a second meeting may be called which may be held with the number of shareholders present. In both ordinary and extraordinary meetings, decisions are adopted by an absolute majority of votes present at the meeting, except for certain fundamental matters (such as mergers and spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), anticipated liquidation, a change in our domicile to outside of Argentina, total or partial recapitalization of our statutory capital following a loss, any transformation in our corporate legal form or a substantial change in our corporate purpose) which require an approval by vote of the majority of all the stock entitled to vote (all stock being entitled to only one vote).
(viii) Rule 5620 (b) – Solicitation of Proxies. In lieu of the requirements of Rule 5620 (b), we follow Argentine law which requires that notices of shareholders’ meetings be published, for five consecutive days, in the Official Gazette and in a widely circulated newspaper in Argentina no earlier than 45 calendar days prior to the meeting and at least 20 calendar days prior to such meeting. In order to attend a meeting and be listed on the meeting registry, shareholders are required to submit evidence of their book-entry share account held at Caja de ValoresS.A. up to three business days prior to the scheduled meeting date. If entitled to attend the meeting, a shareholder may be represented by proxy (properly executed and delivered with a certified signature) granted to any other person, with the exception of a director, syndic, member of the surveillance committee (“consejo de vigilancia”), manager or employee of the issuer, which are prohibited by Argentine law from acting as proxies. In addition, our ADRs holders receive, prior to the shareholders’ meeting, a notice listing the matters on the agenda, a copy of the annual report and a voting card.
(ix) Rule 5630 (a) – Conflicts of Interest. In lieu of the requirements of Rule 5630 (a), we follow Argentine law which requires that related party transactions be approved by the audit committee when the transaction exceeds 1% of the corporation’s net worth, measured pursuant to the last audited balance sheet. Directors can contract with the corporation only on terms consistent with prevailing market terms. If the contract is not in accordance with prevailing market terms, such transaction must be pre-approved by the board of directors (excluding the interested director). In addition, under Argentine law, a shareholder is required to abstain from voting on a business transaction in which its interests may be in conflict with the interests of the company. In the event such shareholder votes on such business transaction and such business transaction would not have been approved without such shareholders’ vote, such shareholder may be liable to the company for damages and the resolution may be declared void.
Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards.
Employees
The following table shows the composition of our staff:
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|
| 2018 |
|
| 2017 |
| |||
Grupo Financiero Galicia S.A. |
|
| 3 |
|
|
| 5 |
|
|
| 4 |
|
Banco de Galicia y Buenos Aires S.A.U. |
|
| 6,118 |
|
|
| 6,294 |
|
|
| 6,214 |
|
Branches |
|
| 3,248 |
|
|
| 3,231 |
|
|
| 3,185 |
|
Head Office |
|
| 2,870 |
|
|
| 3,063 |
|
|
| 3,029 |
|
Tarjetas Regionales |
|
| 3,151 |
|
|
| 3,488 |
|
|
| 3,896 |
|
Galicia Administradora de Fondos |
|
| 27 |
|
|
| 22 |
|
|
| 19 |
|
Sudamericana Consolidated |
|
| 395 |
|
|
| 381 |
|
|
| 375 |
|
Other Subsidiaries |
|
| 24 |
|
|
| 19 |
|
|
| 24 |
|
Total |
|
| 9,718 |
|
|
| 10,209 |
|
|
| 10,532 |
|
Within the current legal framework, membership in an employee union is voluntary and there is only one union of bank employees with national representation. As of December 31, 2019, approximately 39.5% of Banco Galicia’s employees were affiliated with the national bank employee union. As of December 31, 2019, approximately 90% of Tarjetas Regionales’ work force was party to the merchant union’s Collective Bargaining Agreement No.130/75 applicable to trade employees and 6% of which were members of a labor union.
In general, during the first four months of 2019, the bank employees union and the national commerce employees union commenced negotiations on their respective collective labor agreements to establish new minimum wages. As a result of such negotiations, the minimum wage was increased for these positions. In 2019, due to the significant increases in the inflation index, the increases in the banking agreement were carried out in the months of January, March, July, September, October, November and December. In 2019, the Argentine union that represents employees in the banking sector declared general strikes. These strikes were not specific to any bank but affected all banks in Argentina. Certain of the Bank’s employees who are members of the union participated in the strike; however, the Bank was able to continue its operations during such time as not all employees are members of the union. While employees of Banco Galicia have participated in general strikes against the Argentine banking sector, Banco Galicia has not experienced a targeted strike by its employees since 1973 and Tarjetas Regionales Companies have never experienced a targeted employee strike. We believe that our relationship with our employees is stable and positive.
We have a human resources policy that aims at providing our employees possibilities for growth and personal and socio-economic achievement. We will continue our current policy of monitoring both wage levels and labor conditions in the financial industry in order to be competitive. Our employees receive fixed compensation and may receive variable compensation according to their level of achievement. We do not maintain any profit-sharing programs for our employees.
In a survey conducted in 2019 by Great Place to Work®, Banco Galicia ranked for the third consecutive year among the best companies to work in Argentina with more than 1,000 employees, while Tarjeta Naranja ranked
second for the second consecutive year among the best companies to work in Argentina with more than 1,000 employees.
The Fundación Banco de Galicia y Buenos Aires (the “Fundación”) is an Argentine non-profit organization that provides various services to Banco Galicia employees. The various activities of the Fundación include, among others, purchasing school materials for the children of Banco Galicia’s employees and making donations to hospitals and other charitable causes, including cultural events. The Fundación is managed by a Council, certain members and alternate members of which are members of our Board of Directors and supervisory committee. Members and alternate members of the Council do not receive remuneration for their services as trustees.
Share Ownership
For information on the share ownership of our directors and executive officers as of December 31, 2019, see Item 7. “Major Shareholders and Related Party Transactions—A. Major Shareholders”.
As of March 31, 2020, our capital structure was made up of class A shares, each of which is entitled to five votes and class B shares, each of which is entitled to one vote. As of March 31, 2020, we had 1,426,764,597 shares outstanding composed of 281,221,650 class A shares and 1,145,542,947 class B shares.
Our controlling shareholders are members of the Escasany, Ayerza and Braun families and the Fundación. As of March 31, 2019, the controlling shareholders owned 100% of our class A shares through EBA Holding (representing 19.7% of our total outstanding shares) and 9.6% of our class B shares (or 7.7% of our total outstanding shares), therefore directly and indirectly owning 27.4% of our shares and 59.4% of total votes.
Based on information that is available to us, the table below sets forth, as of March 31, 2020, the number of our class A and class B shares held by holders of more than 5% of each class of shares, the percentage of each class of shares held by such holder, and the percentage of votes that each class of shares represent as a percentage of our total possible votes.
Class A Shares
Name |
| Class A Shares |
| % of Class A Shares |
| % of Total Votes | |
EBA Holding S.A. |
|
| 281,221,650 |
| 100 |
| 55.1 |
Class B Shares
Name |
| Class A Shares |
| % of Class A Shares |
| % of Total Votes | |
The Bank of New York Mellon (1) |
|
| 559,661,380 |
| 48.9 |
| 21.9 |
ANSES |
|
| 264,221,559 |
| 23.1 |
| 10.4 |
EBA Holding Shareholders (2) |
|
| 110,460,196 |
| 9.6 |
| 4.4 |
(1) Pursuant to the requirements of Argentine law, all class B shares represented by ADSs are owned of record by The Bank of New York, as Depositary. The address for the Bank of New York is 101 Barclay Street, New York 10286, and the country of organization is the United States.
(2) No member holds more than 2.0% of the capital stock. Such holding includes 15,056,360 shares in the form of ADSs.
Based on information that is available to us, the table below sets forth, as of March 31, 2020, the shareholders that either directly or indirectly have more than 5% of our votes or shares.
Name |
| Shares |
| Class |
| % of Class A Shares |
| % of Total Votes | |
The Bank of New York Mellon |
|
| 559,661,380 |
| B |
| 39.2 |
| 21.9 |
EBA Holding S.A. |
|
| 281,221,650 |
| A |
| 19.7 |
| 55.1 |
ANSES. |
|
| 264,221,559 |
| B |
| 18.5 |
| 10.4 |
EBA Holding Shareholders. |
|
| 110,460,196 |
| B |
| 7.7 |
| 4.3 |
Members of the three controlling families have owned the majority of the issued share capital of Banco Galicia since 1959. Members of the Escasany family have been on the board of directors of Banco Galicia since 1923. The Ayerza and Braun families have been represented on Banco Galicia’s board of directors since 1943 and 1947, respectively. Currently, there are five members of these families on our Board of Directors.
On September 13, 1999, the controlling shareholders of Banco Galicia formed EBA Holding S.A., an Argentine corporation, which is 100% owned by our controlling shareholders. EBA Holding holds 100% of our class A shares.
Currently, EBA Holding only has class A shares outstanding. EBA Holding’s bylaws provide for certain restrictions on the sale or transfer of its class A shares. While the class A shares of EBA Holding may be transferred to any other class A shareholder of EBA Holding, any transfer of such class A shares to third parties would automatically result in the conversion of the sold shares into class B shares of EBA Holding having one vote per share. In addition, EBA Holding’s bylaws contain rights of first refusal, buy-sell provisions and tag-along rights.
As of March 31, 2020, we had 115 identified United States record shareholders (not considering The Bank of New York), of which 21 held our class B shares and 94 held our ADSs. Such United States holders, in the aggregate, held approximately 174,9 million of our class B shares, representing approximately 12.3% of our total outstanding capital stock as of such date.
Grupo Financiero Galicia and its non-banking subsidiaries are not a party to any transactions with, and have not made any loans to any (i) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by Grupo Financiero Galicia or its non-banking subsidiaries, (ii) associates (i.e., an unconsolidated enterprise in which Grupo Financiero Galicia or its non-banking subsidiaries has a significant influence or which has significant influence over Grupo Financiero Galicia or its non-banking subsidiaries), (iii) individuals owning, directly or indirectly, an interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries that gives them significant influence over Grupo Financiero Galicia or its non-banking subsidiaries, as applicable, and close members of any such individual’s family (i.e., those family members that may be expected to influence, or be influenced by, that person in their dealings with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable), (iv) key management personnel (i.e., persons that have authority and responsibility for planning, directing and controlling the activities of Grupo Financiero Galicia or its non-banking subsidiaries, including directors and senior management of companies and close members of such individual’s family) or (v) enterprises in which a substantial interest is owned, directly or indirectly, by any person described in (iii) or (iv) over which such a person is able to exercise significant influence nor are there any proposed transactions with such persons. For purposes of this paragraph, this includes enterprises owned by directors or major shareholders of Grupo Financiero Galicia or its non-banking subsidiaries that have a member of key management in common with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable. In addition, “significant influence” means the power to participate in the financial and operating policy decisions of the enterprise but means less than control. Shareholders beneficially owning a 10% interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries are presumed to have a significant influence on Grupo Financiero Galicia or its non-banking subsidiaries, as applicable.
Some of our directors and the directors of Banco Galicia have been involved in certain credit transactions with Banco Galicia as permitted by Argentine law. The Corporations Law and the Argentine Central Bank’s regulations allow directors of a limited liability company to enter into a transaction with such company if such transaction follows prevailing market conditions. Additionally, a bank’s total financial exposure to related individuals or legal entities is subject to the regulations of the Argentine Central Bank. Such regulations set limits on the amount of financial exposure that can be extended by a bank to affiliates based on, among other things, a percentage of a bank’s TIER 1. See Item 4. “Information on the Company—Argentine Banking Regulation—Lending Limits”.
Banco Galicia is required by the Argentine Central Bank to present to its board of directors, on a monthly basis, the outstanding amounts of financial assistance granted to directors, controlling shareholders, officers and other related entities, which are transcribed in the minute books of the board of directors of Banco Galicia. The Argentine Central Bank establishes that the financial assistance granted to directors, controlling shareholders, officers and other related entities must be granted on an equal basis with respect to rates, tenor and guarantees as loans granted to the general public.
In this section “total financial exposure” comprises equity interests and financial assistance (all credit related items such as loans, holdings of corporate debt securities without quotation, guarantees granted and unused balances of loans granted, among others), as this term is defined in Item 4. “Information on the Company—Argentine Banking Regulation—Lending Limits”.
“Related parties” refers mainly to our directors and the directors of Banco Galicia, our senior officers and senior officers of Banco Galicia, our syndics and Banco Galicia’s syndics, our controlling shareholders as well as all individuals who are related to them by a family relationship and any entities directly or indirectly affiliated with any of these parties, not required to be consolidated.
The following table presents the aggregate amounts of total financial exposure of Banco Galicia to related parties, the number of recipients, the average amounts and the single largest exposures as of the end of the two fiscal years ended December 31, 2018 and 2019, and as of February 29, 2020, the last date for which information is available.
|
| February 29, |
|
| December 31, |
| ||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (in millions of Pesos, except as noted) |
| |||||||||
Aggregate Total Financial Exposure |
|
| 1,147 |
|
|
| 1,102 |
|
|
| 1,471 |
|
Number of Recipient Related Parties |
|
| 265 |
|
|
| 283 |
|
|
| 329 |
|
Individuals |
|
| 213 |
|
|
| 229 |
|
|
| 269 |
|
Companies |
|
| 52 |
|
|
| 54 |
|
|
| 60 |
|
Average Total Financial Exposure |
|
| 5 |
|
|
| 4 |
|
|
| 4 |
|
Single Largest Exposure |
|
| 431 |
|
|
| 438 |
|
|
| 558 |
|
The financial assistance granted to our directors, officers and related parties by Banco Galicia was granted in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related parties, and did not involve more than the normal risk of collectability or present other unfavorable features.
In June 2011, Banco Galicia entered into an agreement with Galicia Seguros, a company indirectly controlled by Grupo Financiero Galicia, pursuant to which the Bank can offer insurance products on behalf of Galicia Seguros. In addition, they entered into an agreement for a one-year period pursuant to which Galicia Seguros insures the Bank for the balances of certain loans in the case of death of its clients. On July 31, 2014, Banco Galicia renewed both agreements with Galicia Seguros, for an additional year, with automatic deferral. Such agreements were considered to be “related party transactions” pursuant to Section 72 of the Capital Markets Law.
On March 11, 2015, Banco Galicia’s board of directors granted a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.230 million with a maturity date of June 30, 2016 (equivalent to Ps.1,014 million as of December 2019), which was increased on April 5, 2016 to Ps.300 million with a maturity date of June 30, 2017 (equivalent to Ps.961 million as of December 2019).
On March 14, 2017, Banco Galicia’s board of directors decided to grant a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.500 million with a maturity date of June 30, 2018 (equivalent to Ps.1,335 million as of December 2019), which was increased in September 2017 to Ps.854 million (equivalent to Ps.2,058 million as December 2019).
| 163 |
Consolidated Financial Statements
We have elected to provide the financial information set forth in Item 18 of this annual report.
Legal Proceedings
We are a party to the following legal proceedings:
Banco Galicia
In response to certain pending legal proceedings, Banco Galicia has recorded reserves to cover (i) various types of claims filed by customers against it (e.g., claims for thefts from safe deposit boxes, collections of checks that had been fraudulently altered, discrepancies related to deposit and payment services rendered to Banco Galicia’s customers, etc.) and (ii) estimated amounts payable under labor-related lawsuits filed against Banco Galicia by former employees.
With regard to the Autonomous City of Buenos Aires ‘claims on account of other items, Banco Galicia adhered to the System for the Settlement of Tax Liabilities in Arrears (Law No.3,461 and related regulations), which contemplated the total relief of interest and fines.
In connection with the assessments made by the tax collection authorities from the Province of Buenos Aires, under the framework of some of the processes under discussion at the Provincial Tax Court, at this stage of proceedings the judgement issued was favorable with regard to the non-taxability thereof. Therefore, Banco Galicia adhered to the System for the Regularization of Tax Debts (Regulatory Decision No.12 and related decisions), which contemplated discounts on the amounts not related to the Compensatory Bond. The Bank’s adherence to such system was communicated within the framework of the respective cases before the corresponding judicial authorities. In turn, the authorities from the Province of Buenos Aires objected to the judgment issued by the Provincial Tax Court with regard to the Compensatory Bond and requested the Court of Appeals in Administrative Matters of La Plata to reverse such decision. Banco Galicia entered an appearance and filed a motion for lack of jurisdiction, since it believed that only the Argentine Supreme Court of Justice has jurisdiction to issue a decision on such matter. On April 15, 2014, the aforementioned court sustained the motion for lack of jurisdiction and ordered the proceedings to be filed. The authorities from the Province of Buenos Aires filed an appeal before the Supreme Court of Justice of the Province of Buenos Aires, which has not issued a decision to date.
Furthermore, Banco Galicia challenged certain claims made by various jurisdictions at the corresponding administrative and/or legal proceedings. These proceedings and their possible effects are constantly being monitored by the Bank’s management. Even though Banco Galicia considers it has complied with its tax liabilities in full pursuant to current regulations, adequate reserves in respect of such proceedings have been allocated.
As of December 31, 2019, a number of claims for repayment of income tax overpaid for the 2014, 2015, 2016, 2017 and 2018 tax years for the total sum of $6,350,696,000 are based on the above-five jurisprudence establishing the unconstitutionality of rules that disenable the application of the tax inflation adjustment, which results in confiscatory situations. In the face of the delay in resolving the tax code, claims were initiated. At the close of these financial statements, the Bank does not record contingent assets derived from the above-mentioned claims.
Consumer Protection Associations, on behalf of consumers, have filed claims against Banco Galicia in connection with the collection of certain financial charges. The Bank does not believe that the resolution of these controversies will have a significant impact on its financial condition.
Tarjetas Regionales
The federal tax authority (the “AFIP”), Provincial Revenue Boards and Municipalities are in the process of conducting audits and assessments, in differing stages of completion, on the companies controlled by Tarjetas Regionales. Said agencies have served notices and made claims regarding taxes applicable to Tarjetas Regionales’s subsidiaries. Such companies are taking the corresponding administrative and legal steps in order to solve such issues. The original amount claimed for taxes totaled approximately Ps.38 million.
As of December 1, 2017, Tarjeta Naranja had filed a reimbursement claim before the AFIP regarding its income tax for the 2014-2016 fiscal years in an amount equal to Ps.580,164 (which, as adjusted for inflation, was equal to Ps 1,318 million). The claim was made considering the lack of application of the inflation adjustment standards set forth in Section VI of the Income Tax Law, which led to a substantial difference in the taxable income exceeding the reasonable limits of taxation. The same claim was presented on behalf of Tarjetas Cuyanas as of May 17, 2018, for 2014-2016, amounting Ps.145,478. Along the same lines, on September 27, 2019, the Company presented the claim pertaining to the 2017 fiscal year for the amount of Ps.326,498 in nominal value and on September 17, 2019, the one of 2018 was presented in an amount equal to Ps.973,843 in nominal value.
In the absence of a response from AFIP, on December 6, 2019, a judicial protection for default was filed with the National Tax Court for the periods 2014 and 2016 of Tarjeta Naranja S.A. On the other hand, and having elapsed the period established in the applicable regulations without obtaining AFIP’s response to the claim, on December 27, 2019, a repetition claim was filed before the Federal Justice for the 2014 and 2016 fiscal years of Tarjeta Cuyanas S.A. and fiscal year 2018 of Tarjeta Naranja S.A. The same lawsuit was filed on December 30, 2019 for the 2017 fiscal year of Tarjeta Naranja S.A. Both claims remain pending before the AFIP.
Based on the opinion of tax advisors, each of Tarjeta Naranja and Tarjetas Cuyanas believes that such claims are unfounded and that the taxes related to such claims have been correctly calculated in accordance the tax regulations then in force and Argentine case law.
Dividend Policy and Dividends
Dividend Policy
Grupo Financiero Galicia’s policy for the distribution of dividends considers, among other factors, the obligatory nature of establishing a legal reserve, the Company’s financial condition and its indebtedness, the business requirements of affiliated companies and, mainly, that the profits recorded in the financial statements are, to a great extent, income from holdings and not realized and liquid profits, a requirement of Section 68 of the Corporations Law so that it is possible to distribute them as dividends. The proposal to distribute dividends arising from such analysis has to be approved at the shareholders’ meeting that discusses the Financial Statements corresponding to each fiscal year.
We may only declare and pay dividends out of our retained earnings representing the profit realized on our operations and investments. The Corporations Law and our bylaws state that no profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per share basis. As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired until it is fully restored. The legal reserve is not available for distribution to shareholders.
Our ability to pay dividends to our shareholders principally depends on (i) our net income, (ii) cash availability, (iii) indebtedness and (iv) applicable legal requirements.
Holders of our ADSs will be entitled to receive any dividends payable in respect of our underlying class B shares. We will pay cash dividends to the ADSs depositary in Pesos, although we reserve the right to pay cash dividends in any other currency, including Dollars. The ADSs deposit agreement provides that the depositary will convert cash dividends received by the ADSs depositary in Pesos to Dollars and, after deduction or upon payment of fees and expenses of the ADSs depositary and deduction of other amounts permitted to be deducted from such cash payments in accordance with the ADSs deposit agreement (such as for unpaid taxes by the ADSs holders in connection with personal asset taxes or otherwise), will make payment to holders of our ADSs in Dollars.
Dividends
Grupo Financiero Galicia
As a holding company, our principal source of cash from which to pay dividends on our shares is dividends or other intercompany transfers from our subsidiaries, primarily Banco Galicia. Due to dividend restrictions contained in Banco Galicia’s loan agreements in connection with Banco Galicia’s foreign debt restructuring - that were lifted when such debt was fully paid during fiscal year 2016 - and in some Argentine Central Bank regulations, our ability to distribute cash dividends to our shareholders has been materially and adversely affected since late 2001 until 2010, when Banco Galicia obtained the authorization to distribute its profits.
After the end of fiscal year 2011, the Argentine Central Bank modified its regulations governing the minimum capital requirements and dividend distribution and, consequently, Banco Galicia was not able to pay dividends. However, for fiscal year 2018 the Bank had met the aforementioned regulations and its shareholders´ meeting held on April 25, 2019 approved the distribution of cash dividends for Ps.1,500 million, equivalent to Ps.1,996 million as of December 2019.
During 2018, Grupo Financiero Galicia paid cash dividends for Ps.1,200 million for fiscal year 2017, representing Ps.0.8411 per share, equivalent to Ps.2,487 million as of December 2019. During 2019, Grupo Financiero Galicia paid cash dividends for fiscal year 2018 in the amount of Ps.2,000 million, representing Ps.1.401773 per share, equivalent to Ps.2,661 million as of December 2019.
Due to the fact that most of the profits in fiscal year 2019 correspond to holdings income that does not meet the requirements for distribution set forth in Section 68 of the Corporations’ Law and given Grupo Financiero Galicia’s financial condition, a proposal was made by the Board of Directors to increase the discretionary reserve for future dividends´ distribution and to grant to said Board of Directors the ability to partially affect said reserve to pay cash dividends, in an amount equal to Ps.4,000 million, (which represents 280.3546%) with regard to 1,426,764,597
class A and B ordinary shares, with a face value of Ps.1 each, subject to Banco Galicia´s capacity to pay cash dividends in at least the same amount.
The aforementioned proposal was approved by shareholders´ meeting held on April 28, 2020.
Due to the provisions recently passed by the Argentine Central Bank within the framework of the COVID-19 pandemic, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020.
Pursuant Act No.27,260, Grupo Financiero Galicia neither reimbursed nor withheld any amount for tax purposes on the dividends paid for fiscal year 2018.
Pursuant to regulations in force Grupo Financiero Galicia may withhold some amount for tax purposes on the dividends to be paid for fiscal year 2019.
For more information on requirements for dividend distribution, see Item 4. “Information on the Company”-B.”Business Overview”— “Argentine Banking Regulation”—“Profit Distribution”.
BancoGalicia
During the ordinary and extraordinary shareholders’ meeting held on April 25, 2019, the shareholders approved the payment of a cash dividend, in the amount of Ps.1,500 million, corresponding to the 2018 fiscal year.
Taking into consideration the Argentine Central Bank rules regarding the distribution of profits, as explained above, the shareholders’ meeting held on
April 28, 2020, approved the allocation of Ps.7,046 million to a legal reserve and Ps.28,184 million to a voluntary reserve for the future distribution of profits, and delegated to the Board of Directors the ability to release funds from said voluntary reserve in an amount up to Ps.10,000 million.
Sudamericana Holding
During the year 2019, Sudamericana held an extraordinary shareholders’ meeting, at which shareholders approved the payment of a cash dividend in the amount of Ps.599.8 million.
The outbreak and spread of a virus called “coronavirus” (or COVID-19) by the end of 2019 has given rise to various consequences in both business and economic activities throughout the world. Due to the exceptional nature of the virus and its rapid global spread, in March 2020 several governments around the world implemented drastic measures to contain the spread, including, but not limited to, the closure of borders and the ban on travel to and from certain parts of the world for a period of time, and the mandatory isolation of its citizens together with the cessation of non-essential commercial activities. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic.
Internationally, the main economic indicators welcomed 2020 with mixed signals. On the one hand in January of 2020, industrial activity grew, which was partially connected to a deceleration of the decline of the industrial activity in the Eurozone. Optimism regarding the commercial relationship between the United States and China also grew after both countries signed the first phase of a potential commercial agreement. On the other hand, industrial activity growth decelerated in both the United States and China, political tension between the United States and Iran escalated, and major stock indices saw an initial downturn by the end of January from all-time highs as concerns for the COVID-19 virus grew. Meanwhile, the Federal Reserve of the United States maintained cautious monetary policies, amid flight-to-quality strategies on behalf of investors and falling prices among commodities.
Since February, global attention has been focused on the spread of COVID-19 (which was initially concentrated in China), but which began spreading globally during this month. Beginning in February, the spread of COVID-19 had already significantly impacted China and exacerbated the economic deceleration in such country and lead to an economic deceleration in the United States. Other economies, however, continued to show improving indicators. Meanwhile, Donald Trump was acquitted from charges of abuse of power and obstruction of justice,
clearing his political path for the scheduled presidential elections later in the year, and the U.S. Federal Reserve Bank maintained its cautious stance noticing the potential spread of COVID-19, and investors and commodities upheld their warning tendencies. Also, major stock indices, which had reached new historical maximum levels, started to fell significantly while reflecting increased levels of uncertainty and volatility.
Starting in March, COVID-19 spread worldwide. The virus started affecting Europe, but by month-end the United Stated became the global epicenter of infected individuals, while China was able to control the spread within its territory. That same month Saudi Arabia announced the highest oil price cut over the last 30 years in response to the collapse of the OPEC+ agreement. As a result, economic indicators reacted positively to more stability in China but otherwise experience dramatic falls to negative levels in the rest of the world, while stock indices registered generalized declines with historical maximum volatility levels not seen since the 2008 crisis. In addition, investors boosted their flight-to-quality strategies and the price of commodities in general fell, mainly led by an extreme decrease in oil price.
The immediate response of policymakers around the globe to the Coronavirus was unprecedented, both in the monetary and tax front. Among others, in March the U.S. Federal Reserve Bank held unscheduled meetings and decided to reduce its rates range by a total of 150 bps to a range from 0.0% to 0.25%. The latter aligned with an also extraordinary quarantine lockdown in some states of the United States, a search to flatten the curve of infected individuals, which would in turn prevent health systems’ saturation. Since then, investors continue to reassess their projections of the potential economic and credit impact of COVID-19 and of the current historically low oil international prices, enabling a partially recover in global assets. Yet, uncertainty and volatility continue to prevail and there is uncertainty regarding the impact on the international economies for 2020.
For more information on the impact of COVID-19, see “Forward Looking Statements”— Item 3.D “Risk Factors” — Item 5.“Operating Results-Principal Trends”.
In Argentina, the National Government implemented a number of measures aimed at reducing the movement of the population, establishing the social, preventive and mandatory isolation from March 20 to May 10, 2020 (which could be extended if the government considers it necessary), where only individuals working in the rendering/production of essential services and products were allowed to leave their homes.
The final significance of the coronavirus outbreak and its impact on both world and local economies is unknown, and the governments might take even stricter measures, which are not predictable at this time. As of the date of issuance of our financial statements, Grupo Financiero Galicia has not experienced significant impacts on its income as a result of this pandemic. Although the Argentine Central Bank established a series of measures in order to minimize physical contact between people, the most relevant being the limitation of customer service at our branches, the operations of our subsidiaries are maintained and we expect them to continue in spite of the difficulties. However, the extent to which the coronavirus will affect the future of Grupo Galicia’s business, and the impact on the income from our operations cannot be reasonably quantified if this situation extends for a longer period of time.
The Board of Directors is closely monitoring this situation and taking all the required measures within their reach to preserve human life and our operations.
Item 9. The Offer and Listing
Shares and ADSs
Our class B shares are listed on the BYMA, MAE and the Córdoba Stock Exchange under the symbol “GGAL”. Our class B shares have started listing on MAE since October 28, 2015. Our ADSs, each representing ten class B shares, are listed on the Nasdaq Capital Market, under the symbol “GGAL”. Our ADSs have been listed on Nasdaq Capital Market since August 2002. Previously, our ADSs had been listed on the Nasdaq National Market since July 24, 2000.
Argentine Securities Market
The principal and oldest exchange for the Argentine securities market is the BYMA. The BYMA started operating in 1854 and handles the largest proportion of all equity trading in Argentina. Securities listed on the BYMA include corporate equity and debt securities and government securities. Debt securities listed on the BYMA may also be listed on the MAE. The MERVAL, which is affiliated with the BYMA, was founded in 1929 and is the largest stock market in Argentina. The MERVAL is a private entity, whose capital is integrated by shares admitted to public offer regime and was registered as a market by the CNV under N°16. Its capital is composed of 104 outstanding shares and there are 182 agents registered as members of the Merval market. We are member of the Merval through Galicia Valores, a subsidiary that owns one share. Additionally, the Bank, within the framework of the Capital Market Law, was authorized by the CNV to act as a settlement and clearing agent and trading agent-comprehensive, and was added as member of the MERVAL.
Trading on the BYMA is conducted through a trading platform introduced during 2017 called Milleniun, from 11:00 a.m. to 5:00 p.m. each business day of the year. The Millenium software is a computer trading platform system that permits trading in debt and equity securities that can be accessed by brokers directly from workstations located at their offices. As a result of an agreement between the MERVAL and the MAE, equity securities are traded exclusively on the BYMA and corporate and government debt securities are traded on the MAE and the BYMA. Currently, all transactions relating to listed corporate and government debt securities can be effected said trading platform. In addition, a substantial over-the-counter market exists for private trading in listed debt securities and, prior to the agreement described above, equity securities. Such trades are reported on the MAE.
Although companies may list all of their capital stock on the BYMA, in most cases the controlling shareholders retain the majority of a company’s capital stock. This results in only a relatively small percentage of most companies’ stock being available for active trading by the public on the BYMA. Even though individuals have historically constituted the largest group of investors in Argentina’s equity markets, in recent years, banks and insurance companies have shown an interest in these markets. Argentine mutual funds, by contrast, continue to have very low participation in the market. Although 104 companies had equity securities listed on the BYMA as of December 31, 2019, the 10 most-traded companies on the exchange accounted for approximately 65.2% of total trading value during 2019, from a 67.3% recorded in 2018. Our shares were the first-most traded shares on the BYMA in 2019, with a 24.2% share of trading volume from an also first position of 15.2% recorded during 2018.
The Córdoba Stock Exchange is another important stock market in Argentina. Securities listed on the Córdoba Stock Exchange include both corporate equity and debt securities and government securities. Through an agreement with the BYMA, all the securities listed on the BYMA are authorized to be listed and subsequently traded on the Córdoba Stock Exchange. Thus, many transactions that originate on the Córdoba Stock Exchange relate to companies listed on the BYMA and such trades are subsequently settled in Buenos Aires.
The MAE is a self-regulated organization that is supervised by the CNV. MAE is mainly comprised by private banks, either composed by national or foreign capital, national banks, provincial banks, municipal Banks, cooperative Banks, financial companies, exchange companies and agents.
Market Regulations
The CNV oversees the Argentine securities markets and is responsible for authorizing public offerings of securities and supervising brokers, public companies and mutual funds, among others. Argentine pension funds and insurance companies are regulated by separate Argentine government agencies, while financial institutions are regulated mainly by the Argentine Central Bank. The Argentine securities markets are regulated by the CNV.
In compliance with the provisions of Law No.20,643 and the Decrees No.659/74 and No.2220/80, most debt and equity securities traded on the exchanges and the MAE must, unless otherwise instructed by the shareholders, be deposited in Caja de Valores S.A., which is the central securities depositary of Argentina, that provides deposit facilities for securities and mainly acts as a transfer and paying agent in connection therewith. It also handles settlement of securities transactions and operates the computerized exchange information system.
Pursuant to the requirements of the Argentine regulations, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the U.S. and other countries. However, the CNV has taken steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for non-compliance.
In order to offer securities to the public in Argentina, an issuer must meet certain requirements of the CNV regarding assets operating history, management and other matters, and only securities for which an application for a public offering has been approved by the CNV may be listed on the corresponding stock exchange. This approval does not imply any kind of certification of assurance related to the merits of the quality of the securities, or the solvency of the issuer. Issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements, as well as various other periodic reports, with the CNV and the corresponding stock exchange.
Securities can currently be freely traded on the Argentine markets, however the Argentine government has periodically imposed certain restrictions regarding access by residents and non-residents to the local MLC and to transfers of foreign exchange abroad. See Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market”.
On June 2019, the CNV passed Resolution No. 797/19, aimed to strengthen the good practices in corporate governance, emphasizing the principles established by the Organization for Economic Cooperation and Development (“OECD”) and requiring a stronger commitment from the listing companies regarding the compliance with corporate governance.
The Capital Markets Law (Law No. 26,831), which became effective on January 2013, replacing Law No.17,811 and Decree No. 677/01, regulates the capital markets transactions as well as the supervision, control and disciplinary and regulatory powers of the CNV. The Capital Markets Law is supplemented by the CNV Rules.
On May 9, 2018, the Argentine Congress passed Law No. 27,440 (Ley de Financiamiento Productivo) with the goal of developing the Argentine domestic capital markets. The draft bill provides for the amendment and update of the Argentine Capital Markets Law, the Mutual Funds Law and the Argentine Negotiable Obligations Law, among others. Such Law No. 27,440 sets forth certain regulations that are intended to provide SMEs with better access to financial instruments and to create an electronic credit invoice for MSMEs that replace the receipts from sales and credit invoices. Also, Law No. 27,440 improves the regulatory framework by introducing the new products for SMEs, such as discounts for access to the financial market and the amendment of certain tax provisions, regulations relating to derivatives and the promotion of a financial inclusion program.
Item 10. Additional Information
B. Memorandum and Articles of Association
Description of Our Bylaws
General
Set forth below is a brief description of certain provisions of our bylaws and Argentine law and regulations with regard to our capital stock. Your rights as a holder of our capital stock are subject to Argentine corporate law, which may differ from the corporate laws of other jurisdictions. This description is not purported to be complete and is qualified in its entirety by reference to our bylaws, Argentine law and the rules of the BYMA, the Córdoba Stock Exchange as well as the CNV. A copy of our bylaws has been filed with and can be examined at the CNV in Buenos Aires and the SEC in Washington, D.C.
We were incorporated on September 14, 1999, as a stock corporation under the laws of Argentina and registered on September 30, 1999, with the IGJ, under corporate registration number 14,519 of Book 7, Volume of Stock Corporations. Our domicile is in Buenos Aires, Argentina. Under our bylaws, our duration is until June 30, 2100 and we are exclusively a financial and investment company (as stated in “Chapter 2. Purpose. Article 3.” of our bylaws). This duration may be extended by resolution taken at an extraordinary shareholders’ meeting.
Our bylaws do not contain any provision governing the ownership threshold above which shareholder ownership must be disclosed.
Outstanding Capital Stock
Our total subscribed and paid-in share capital as of December 31, 2019, amounted to Ps.1,426,764,947, composed of class A shares and class B shares, each with a par value of Ps.1. The following table presents the number of our shares outstanding as of December 31, 2019, and the voting interest that the shares represent.
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| December 31, 2019 |
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Shares |
| Number of Shares |
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| % of Capital Stock |
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| % of Voting Rights |
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Class A Shares |
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| 281,221,650 |
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| 19.71 | % |
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| 55.11 |
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Class B Shares |
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| 1,145,542,947 |
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| 80.29 | % |
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| 44.89 |
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Total |
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| 1,426,764,597 |
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| 100 | % |
| 100 |
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Registration and Transfer
The class B shares are book-entry common shares held through Caja de Valores. Caja de Valores maintains a stock registry for us and only those persons listed in such registry will be recognized as our shareholders. Caja de Valores periodically delivers to us a list of the shareholders as at a certain date.
The class B shares are transferable on the books of Caja de Valores. Caja de Valores records all transfers in our registry. Within 10 days of any such transfer, Caja de Valores is required to confirm the registration of transfer with the transferor.
Voting Rights
At shareholders’ meetings, each class A share is entitled to five votes and each class B share is entitled to one vote. However, class A shares are entitled to only one vote in certain matters, such as:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange;
- a transformation in our legal corporate form;
- a fundamental change in our corporate purpose;
- a change of our domicile to outside Argentina;
- a voluntary termination of our public offering or listing authorization;
- our continuation following a delisting or a mandatory cancellation of our public offering or listing authorization;
- a total or partial recapitalization of our statutory capital following a loss; and
- the appointment of syndics.
All distinctions between our class A shares and our class B shares will be eliminated upon the occurrence of any of the following change of control events:
- EBA Holding sells 100% of its class A shares;
- EBA Holding sells a portion of our class A shares to a third person who, when aggregating all our class A shares with our class B shares owned by such person, if any, obtains 50% plus one vote of our total votes; or
- the current shareholders of EBA Holding sell shares of EBA Holding that will allow the buyer to exercise more than 50% of the voting power of EBA Holding at any general shareholders’ meeting of EBA Holding shareholders, except for transfers to other current shareholders of EBA Holding or to their heirs or their legal successors or to entities owned by any of them.
Limited Liability of Shareholders
Shareholders are not liable for our obligations. Shareholders’ liability is limited to the payment of the shares for which they subscribe. However, shareholders who have a conflict of interest with us and do not abstain from voting may be held liable for damages to us. Also, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or our bylaws may be held liable for damages to us or to third parties, including other shareholders, resulting from such resolutions.
Directors
Our bylaws provide that the Board of Directors shall be composed by at least three and at most nine members, as decided at a general ordinary shareholders’ meeting. To be appointed to our Board of Directors, such person must have been presented as a candidate by shareholders who represent at least 10% of our voting rights, at least three business days before the date the general ordinary shareholders’ meeting is to be held. Our bylaws do not state an age limit over which the directors cannot serve on our board.
At each annual shareholders’ meeting, the term of one third of the members of our Board of Directors (no fewer than three directors) expires and their successors are elected to serve for a term of three years. The shareholders’ meeting shall have the power to fix a shorter period (one or two years) for the terms of office of one, several or all the directors. This system of electing directors is intended to help maintain the continuity of the board. Alternate directors replace directors until the following general ordinary shareholders’ meeting is held. Directors may also be replaced by alternate directors if a director will be absent from a board meeting. The Board of Directors is required to meet at least once every month and anytime any one of the directors or syndics so requests.
Our bylaws state that the Board of Directors may decide to appoint an executive committee and/or a delegate director.
Our bylaws do not provide for any arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to in this annual report was selected as a director or member of senior management.
Additionally, pursuant to our bylaws, any borrowing powers on behalf of the Company are granted to our Board of Directors. Our Board of Directors has the power to delegate these borrowing powers to our directors through a power of attorney and currently certain of our directors have powers of attorney to negotiate the terms of and borrow money on behalf of the Company. Furthermore, as stated by our bylaws, the chairman of our Board of Directors is also the legal representative of the Company. Although our bylaws do not expressly address a director’s power to vote on proposals, arrangements or contracts in which the director has a material interest, pursuant to customary Argentine business practice and certain tenants of Argentine corporate law, our directors do not vote on proposals, arrangements or contracts in which the director has a material interest.
Appointment of Directors and Syndics by Cumulative Voting
The Corporations Law provides for the use of cumulative voting to enable minority shareholders to appoint members of the board of directors and syndics. Upon the completion of certain requirements, shareholders are entitled to appoint up to one third of the vacancies to be filled on the board of directors by cumulative voting. Each shareholder voting cumulatively has the number of votes resulting from multiplying the number of votes to which such shareholder would normally be entitled by the number of vacancies to be filled. Such shareholder may apportion his votes or cast all such votes for one or a number of candidates not exceeding one third of the vacancies to be filled.
Compensation of Directors
The Corporations Law and the CNV establish rules regarding the compensation of directors. The maximum amount of aggregate compensation that the members of the board of directors may receive, including salaries and other compensation for the performance of permanent technical and administrative services, may not exceed 25.0% of profits of each fiscal year. This maximum amount shall be limited to 5.0% when no dividends are distributed to the shareholders and shall be increased proportionately to the dividend distribution until the 25.0% limit is reached when all profits are distributed.
The Corporations Law provides that aggregate director compensation may exceed the maximum percentage of computable profit in any one year when the company’s profits are non-existent or too small as to allow payment of a reasonable compensation to board members which have been engaged in technical or administrative services to the company, provided that such proposal is described in the notice of the agenda for the ordinary shareholders’ meeting and is approved by a majority of shareholders present at such shareholders’ meeting.
In addition to the above, our bylaws establish that best practices and national and international market standards regarding directors with similar duties and responsibilities shall be considered when determining the compensation of board members.
Syndics
Our bylaws, in accordance with Argentine law, provide for the maintenance of a supervisory committee whose members are three permanent syndics and three alternate syndics. Syndics are elected for a one-year term and may be re-elected. Alternate syndics replace permanent syndics in case of absence. For the appointment of syndics, each of our class A shares and class B shares has only one vote. Fees for syndics are established by the shareholders at the annual ordinary shareholders’ meeting. Their function is to oversee the management of the company, to control the legality of the actions of the board of directors, to attend all board of directors’ meetings, to attend all shareholders’ meetings, to prepare reports for the shareholders on the financial statements with their opinion, and to provide information regarding the company to shareholders that represent at least 2% of the capital stock. Syndics’ liabilities are joint and several and unlimited for the non-fulfillment of their duties. They are also jointly and severally liable, together with the members of the board of directors, if the proper fulfillment of their duties as syndics would have avoided the damage or the losses caused by the members of the board of directors.
Shareholders’ Meetings
Shareholders’ meetings may be ordinary meetings or extraordinary meetings. An annual ordinary shareholders’ meeting is required to be held in each fiscal year to consider the matters outlined in Article 234 of the Corporations Law, including, among others:
- approval of the financial statements and general performance of the management for the preceding fiscal year;
- appointment and remuneration of directors and members of the supervisory committee;
- allocation of profits; and
- any other matter the board of directors decides to submit to the shareholders’ meeting concerning the Company’s business administration. Matters which may be discussed at these or other ordinary meetings include resolutions regarding the responsibility of directors and members of the supervisory committee, as well as capital increases and the issuance of notes.
Extraordinary shareholders’ meetings may be called at any time to discuss matters beyond the competence of the ordinary meeting, including but not limited to amendments to the bylaws, matters related to the liquidation of a company, limitation of the shareholders’ preemptive rights to subscribe new shares, issuance of bonds and debentures, transformation of the corporate form, a merger into another company and spin-offs, early winding-up, change of the company’s domicile to outside Argentina, total or partial repayment of capital for losses, and a substantial change in the corporate purpose set forth in the bylaws.
Shareholders’ meetings may be convened by the board of directors or by the syndics. A shareholder or group of shareholders holding at least 5.0% in the aggregate of our capital stock may request the board of directors or the syndics to convene a general shareholders’ meeting to discuss the matters indicated by the shareholder.
Once a meeting has been convened with an agenda, the agenda limits the matters to be decided upon at such meeting and no other matters may be decided upon.
Additionally, our bylaws provide that any shareholder holding at least 5% in aggregate of our capital stock may present, in writing, to the Board of Directors, before February 28 of each year, proposals of items to be included in the agenda at the annual general ordinary shareholders’ meeting. The Board of Directors is not obligated to include such items in the agenda.
Class B shares represented by ADSs will be voted or caused to be voted by the Depositary in accordance with instructions of the holders of such ADSs. In the event instructions are not received from the holder, the Depositary shall give a discretionary proxy for the shares represented by such ADSs to a person designated by us.
Notice of each shareholders’ meeting must be published in the Official Gazette, and in a widely circulated newspaper in the country’s territory, at least twenty days prior to the meeting but not more than forty-five days prior to the date on which the meeting is to be held. The board of directors will determine the appropriate publication of notices outside Argentina in accordance with the requirements of the jurisdictions and exchanges on which our shares are traded. In order to attend a meeting and to be listed on the meeting registry, shareholders must submit evidence of their book-entry share account held at Caja de Valores at least three business days prior to the scheduled meeting date without counting the meeting day.
The quorum for ordinary meetings consists of a majority of stock entitled to vote, and resolutions may be adopted by the affirmative vote of 50% plus one vote (an “absolute majority”) of the votes present whether in person or participating via electronic means of communication. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting may be convened to be held one hour later on the same day as the first meeting had been called for, provided that it is an ordinary shareholders’ meeting, or within 30 days of the date for which the first ordinary meeting was called.
The quorum for extraordinary shareholders’ meetings consists of 60% of stock entitled to vote, and resolutions may be adopted by an absolute majority of the votes present. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting has to be convened to be held within 30 days of the date for which the first extraordinary meeting was called, and the notice must be published for three days, at least eight days before the date of the second meeting. Some special matters require a favorable vote of the majority of all the stock holding voting rights, the class A shares being granted the right to only one vote each. The special matters are described in “—Voting Rights” above.
Dividends
Dividends may be lawfully paid and declared only out of our retained earnings representing the profit realized and liquid on our operations and investments reflected in our annual financial statements, as approved at our annual general shareholders’ meeting. No profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per-share basis.
As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired. The legal reserve is not available for distribution to shareholders.
Our Board of Directors submits our financial statements for the previous fiscal year, together with reports prepared by our supervisory committee, to our shareholders for approval at the general ordinary shareholders’ meeting. The shareholders, upon approving the financial statements, determine the allocation of our net income.
Our Board of Directors is allowed by law and by our bylaws to decide to pay anticipated dividends on the basis of a balance sheet especially prepared for purposes of paying such dividends.
Under BYMA regulations, cash dividends must be paid to shareholders within 10 days of the shareholders’ meeting approving said dividend. Payment of dividends in shares requires authorization from the CNV, the BYMA and the Córdoba Stock Exchange, whose authorizations must be requested within 10 business days after the shareholders’ meeting approving the dividend. We must make a distribution of the shares available to shareholders not later than three months after receiving authorization to do so from the CNV.
Shareholders may no longer claim the payment of dividends from us after three years have elapsed from the date on which the relevant dividends were made available to such shareholders.
Capital Increases and Reductions
We may increase our capital upon resolution of the general ordinary shareholders’ meeting. All capital increases must be reported to the CNV, published in the Official Gazette and registered with the Public Registry of Commerce. Capital reductions may be voluntary or mandatory. A voluntary reduction of capital must be approved by an extraordinary shareholders’ meeting after the corresponding authorization by the BYMA, the Córdoba Stock Exchange and the CNV and may take place only after notice of such reduction has been published and creditors have been given an opportunity to obtain payment or guarantees for their claims or attachment. A reduction of capital is mandatory when losses have exceeded reserves and more than 50% of the share capital of the company.
Preemptive Rights
Under Argentine law, it is mandatory that a shareholder of ordinary shares of any given class have preemptive rights, proportional to the number of shares he or she owns, to subscribe for shares of capital stock of the same class or of any other class if the new subscription offer does not include all classes of shares. Shareholders may only decide to suspend or limit preemptive rights by supermajority at an extraordinary shareholders’ meeting and only in exceptional cases. Shareholders may waive their preemptive rights only on a case-by-case basis.
In the event of an increase in our capital, holders of class A shares and class B shares have a preemptive right to subscribe for any issue of class B shares in an amount sufficient to maintain the proportion of capital then held by them. Holders of class A shares are entitled to subscribe for class B shares because no further class A shares carrying five votes each are allowed to be issued in the future. Under Argentine law, companies are prohibited from issuing stock with multiple voting rights after they have been authorized to make a public offering of securities.
Preemptive rights are exercisable following the last publication of the notification to shareholders of the opportunity to exercise preemptive rights in the Official Gazette and an Argentine newspaper of wide circulation for a period of 30 days, provided that such period may be reduced to no less than 10 days if so approved by an extraordinary shareholders’ meeting.
Shareholders who have exercised their preemptive rights and indicated their intention to exercise additional preemptive rights are entitled to additional preemptive rights (“accretion rights”), on a pro rata basis, with respect to any unsubscribed shares, in accordance with the terms of the Corporations Law. Class B shares not subscribed for by shareholders through the exercise of their preemptive or accretion rights may be offered to third parties.
Holders of ADSs may be restricted in their ability to exercise preemptive rights if a registration statement relating to such rights has not been filed or is not effective or if an exemption from registration is not available.
Appraisal Rights
Whenever our shareholders approve:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange,
- a transformation in our legal corporate form,
- a fundamental change in our corporate purpose,
- a change of our domicile to outside Argentina,
- a voluntary termination of our public offering or listing authorization,
- our continuation following a delisting or a mandatory cancellation of our public offering or listing authorization, or
- a total or partial recapitalization of our statutory capital following a loss,
any shareholder that voted against such action or did not attend the relevant meeting may exercise its right to have its shares canceled in exchange for the book value of its shares, determined on the basis of our latest balance sheet prepared in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within the periods set forth below.
There is, however, doubt as to whether holders of ADSs, will be able to exercise appraisal rights with respect to class B shares represented by ADSs.
Appraisal rights must be exercised within five days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolutions, or within 15 days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of a merger or spin-off involving an entity authorized to make a public offering of its shares, appraisal rights may not be exercised if the shares to be received as a result of such transaction are listed on any stock exchange. Appraisal rights are extinguished if the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 75 days of the meeting at which the resolution was adopted.
Payment of the appraisal rights must be made within one year from the date of the shareholders’ meeting at which the resolution was adopted, except if the resolution was to delist our capital stock, in which case the payment period is reduced to 60 days from the date of the related resolution.
Preferred Stock
According to the Corporations Law and our bylaws, an ordinary shareholders’ meeting may approve the issuance of preferred stock. Such preferred stock may have a fixed dividend, cumulative or not cumulative, with or without additional participation in our profits, as decided by shareholders at a shareholders’ meeting when determining the conditions of the issuance. They may also have other preferences, such as a preference in the event of our liquidation.
The holders of preferred stock shall not be entitled to voting rights. Notwithstanding the foregoing, in the event that no dividends are paid to such holders for their preferred stock, and for as long as such dividends are not paid, the holders of preferred stock shall be entitled to voting rights. Holders of preferred stock are also entitled to vote on certain special matters, such as the transformation of the corporate form, a merger into another company and
spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), early winding-up, a change of our domicile to outside Argentina, total or partial repayment of capital for losses and a substantial change in the corporate purpose set forth in our bylaws or in the event our preferred stock is traded on stock exchanges and such trading is suspended or terminated.
Conflicts of Interest
As a protection to minority shareholders, under the Corporations Law, a shareholder is required to abstain from voting on any resolution in which its direct or indirect interests conflict with that of or are different than ours. In the event such shareholder votes on such resolution, and such resolution would not have been approved without such shareholders’ vote, the resolution may be declared void by a court and such shareholder may be liable for damages to the company as well as to any third party, including other shareholders.
Redemption or Repurchase
According to the Capital Markets Law, a stock corporation may acquire the shares issued by it, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and those set forth by the CNV. The above-mentioned conditions are: (a) the shares to be acquired shall be fully paid up; (b) there shall be a resolution signed by the board of directors to such effect; (c) the acquisition shall be made out of net profits or free or voluntary reserves; and (d) the total amount of shares acquired by the company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower percentage determined by the CNV. The shares acquired by the company in excess of such limit shall be disposed of within the term of 90 days after the date of the acquisition originating such excess.
The shares acquired by the company shall be disposed of by the company within the maximum term of three years counted as from the date of acquisition thereof. Upon disposing of the shares, the company shall make a preemptive offer thereof. Such an offer will not be obligatory if the shares are used in connection with a compensation plan or program for the company’s employees or if the shares are distributed among all shareholders pro rata their shareholdings. If shareholders do not exercise, in whole or in part, their preemptive rights, the sale shall be made at a stock exchange.
Liquidation
Upon our liquidation, one or more liquidators may be appointed to wind up our affairs. If no such appointment is made, our Board of Directors will act as liquidator. All outstanding common shares will be entitled to participate equally in any distribution upon liquidation. In the event of liquidation, in Argentina and in any other country, our assets shall first be applied to satisfy our debts and liabilities.
Other Provisions
Our bylaws are governed by Argentine law and the ownership of any kind of our shares represents acceptance of our bylaws and submission to the exclusive jurisdiction of the ordinary commercial courts of Buenos Aires for any claim or dispute related to us, our shareholders, directors and members of the supervisory committee.
C. Material Contracts
Bonds
During the 2016 fiscal year, Banco Galicia issued subordinated Class II notes due 2026 in an aggregate principal amount of US$250 million. The proceeds of this issuance were used to redeem the Bank’s outstanding subordinated notes due 2019. During the 2017 fiscal year Banco Galicia issued Class III notes in aggregate principal amount of Ps.150 million due 2020. Class IV notes in an aggregate principal amount of Ps.2,000 million due 2020. During the 2018 fiscal year, Banco Galicia issued Class V Series I notes due 2020 and Series II notes due 2020 in an aggregate principal amount of Ps.4,209 million and Ps.2,032 million, respectively.
The pricing supplements for the issuances described above set forth certain covenants Banco Galicia must comply with for the benefit of the holders of such notes, which include, among others, restrictions on mergers, acquisitions or dispositions (subject to certain exceptions) and restrictions on the incurrence of additional debt.
Loans
In May 2016, the IFC granted Banco Galicia a credit line in an amount of up to US$130 million. As of May 2018, Banco Galicia has drawn all of the commited amount and the loan was amortized for US$37 million.
On March 23, 2018, Banco Galicia announced the issuance of a green bond to raise US$100 million in order to expand its loan program for environmental efficiency projects. This is the first green bond issued by a private financial institution in Argentina, marking Banco Galicia’s commitment to finance projects with a positive impact on the environment. The bonds were underwritten on June 21, 2018 by the IFC. To date, loans for US$53 million were granted.
D. Exchange Controls
For a description of the exchange controls that would affect us or the holders of our securities, see Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market”.
E. Taxation
The following is a summary of the principal Argentine and U.S. federal income tax consequences arising from the acquisition, ownership and disposition of our class B shares and ADSs. This summary is based on Argentine and U.S. federal tax laws, as well as the regulations in effect as of the date of this annual report. Further, this summary is subject to any subsequent changes in laws and regulations that may come into effect after this date. Any change could apply retroactively and could affect the continued validity of this summary. This summary does not constitute legal advice or a legal opinion with respect to the transactions that the holders of our class B shares or ADSs may enter into. This summary is only a brief description of certain (but not all) aspects of the Argentine and U.S. federal income tax systems, as they relate to the acquisition, ownership and disposition of our class B shares and ADSs. In addition, although the Company believes that the following summary is a reasonable interpretation of the current taxation rules and regulations, Grupo Galicia cannot assure that the applicable authorities or tribunals will agree with all, or any of the tax consequences outlined below. Currently, there is no tax treaty between the United States and Argentina.
Argentine Taxes
Law No.26,893, enacted on September 12, 2013 and published in the Official Gazette on September 23, 2013, introduced changes to Income Tax Law No.20,628, including the derogation of Section 78 of Decree No.2284/1991; which provides that foreign holders with no permanent establishment in Argentina are exempt from paying income tax on the capital gains arising from the sale or other disposition of shares or ADSs.
Decree No.2334/2013 has regulated Law No.26,893. This decree provides that changes introduced by Law No.26,893 are effective from the date of publication of such law in the Official Gazette and apply to taxable events carried out from such date onwards.
Law No.27,430 enacted on December 27, 2017 and published in the Official Gazette on December 29, 2017, and Law No. 27,541 published in the Official Gazette on December 23,2019 introduced several changes to Income Tax Law No.20,628. The principal change resulting from such law is a corporate income tax rate reduction in two phases. For fiscal years beginning on or after January 1, 2018 until December 31, 2021, the government has reduced the corporate income tax rate from 35% to 30%. After December 31, 2021, the corporate tax rate will be further reduced to 25%.
This reform includes additional changes, such as the confirmation that ADRs and ADSs generate Argentine-sourced income. Non- residents, however, will be exempted from the current 15% capital gains tax on the sale of ADRs or ADSs if they reside in a jurisdiction having an exchange of information agreement with Argentina or if these invested funds come from a cooperating jurisdiction.
Taxation of Dividends
As from the effectiveness of Law No. 27,430 and Law No. 27,541, on December 27, 2017 and December 23, 2019 dividends and distributions (other than stock dividends) made by local entities to individuals, undivided estates, and foreign entities are subject to a withholding tax at a rate of 7% (while the corporate income tax is 30%) and at a rate of 13% beginning on January 1, 2022. Thus, the combined rate on dividend/profit distribution would remain around the current 35% rate, as Argentina has not levied a withholding tax on dividends or branch profits, since it eliminated the same in 2016.
Decree No.1170/2018 provides for further guidance on Law No.27,430. This decree provides that dividend payments on ADSs or ordinary shares, whether in cash, property, or stock, would be subject to Argentine withholding tax and the exemption referred to in the last paragraph of “Argentine Taxes” above shall not apply.
Equalization Tax
There is a specific rule under which a 35% tax (“equalization tax”) will be imposed on certain dividends approved by shareholders. The equalization tax will be applied only to the extent that distributions of dividends exceed the taxable income of the company increased by non-taxable dividends received by the distributing company in prior years and reduced by Argentine income tax paid by the distributing company.
The equalization tax will be imposed as a withholding tax on the shareholder receiving the dividend. Dividend distributions made in kind (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends are not subject to Argentine taxation.
In addition, the foregoing tax reforms abolished the equalization tax for profits generated beginning January 1, 2018. Such equalization tax is a withholding tax levied at a rate of 35% on dividend distributions in excess of tax earnings that would remain applicable for the stock of non-distributed earnings and profits as of December 31, 2017.
Taxation of Capital Gains
In accordance with Law No.27,430 capital gains derived by non-resident individuals or foreign companies from the sale, exchange or other disposition of ADSs or class B shares are subject to the following regulations:
Non-residents continue to be exempted from tax on capital gains arising from the sale of shares in publicly-traded companies, if the shares are traded on the BASE. In accordance with Law No.27,541 the exemption will also apply if the securities are traded in stock or securities markets authorized by the (CNV). The benefits will be applied to foreign beneficiaries as long as they do not reside in non-cooperative jurisdictions or the invested funds do not come from a non-cooperative jurisdiction.
Transfer of Argentine securities that occurred after September 23, 2013 triggered taxation on a retroactive basis, as the suspension of the rule that called for the tax was lifted. The tax will not apply to sales made through stock exchanges if the tax had not been withheld.
Indirect transfers of Argentine assets (including shares) will be taxable, if (i) the value of the Argentine assets exceed 30% of the transaction’s overall value; and (ii) the equity interest sold (in the foreign entity) exceeds 10%. The tax will also be due if any of these thresholds were met during the 12 month period prior to the sale. The indirect transfer of Argentine assets will only be subject to tax if these assets are acquired after January 1, 2018. Transactions involving indirect transfers of Argentine assets within the same economic group would also not trigger taxation, provided the requirements set by regulations have been met. Decree No.862/2019 and General Resolution No.4227/2018, provide that the seller, and not the buyer, is the party responsible for withholding the tax. The regulation has established a new mechanism regulating how non-resident sellers should pay the tax on the capital gain for transactions that have taken place on or after January 1, 2018. In summary, the non-resident seller should pay the tax directly through an international wire transfer unless there is a local withholding agent (i.e., local buyer or local custodial institution) involved in the payment.
Transfer Taxes: no Argentine transfer taxes are applicable on the sale or transfer of ADSs or class B shares.
Personal Assets Tax
Individuals domiciled and undivided estates located in Argentina or abroad will be subject to an annual tax in respect of assets located in Argentina and abroad. Applicable wealth tax rates and minimum non-taxable asset values for the general taxpayer regime are replaced with effect as of fiscal year 2019 by Law No.27,480 and Law No. 27.541. The following is the new scheme:
Fiscal year | Tax rate | Exempt Minimum | ||
2019 onwards | * | Ps.2,000,000 |
*Taxe Rate (In pesos except percentages) |
| |||||||||||||||||
Total Value of Assets |
|
| Flat Tax |
|
| More % |
|
| Taxation over the excess of the amount |
| ||||||||
Over Ps. |
|
| Up to the amount |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| — |
|
|
| 3,000,000 |
|
|
| — |
|
|
| 0.25 |
|
|
| — |
|
| 3,000,001 |
|
|
| 6,500,000 |
|
|
| 15,000 |
|
|
| 0.75 |
|
|
| 3,000,000 |
|
| 6,500,001 |
|
|
| 18,000,000 |
|
|
| 41,250 |
|
|
| 1.00 |
|
|
| 6,500,000 |
|
| 18,000,000 |
|
| Onward |
|
|
| 156,250 |
|
|
| 1.25 |
|
|
| 18,000,000 |
| |
Individuals domiciled abroad will pay the tax only in respect of the assets they hold in Argentina. In the case of individuals domiciled abroad, the tax will be paid by the individuals or entities domiciled in Argentina which, as of December 31 of each year, hold the joint ownership, possession, use, enjoyment, deposit, safekeeping, custody, administration or tenure of the assets located in Argentina and subject to the tax belonging to the individuals domiciled abroad. When the direct ownership of notes, government securities and certain other investments, except shares issued by companies ruled by the Corporations Law, are part of companies domiciled abroad in countries that do not enforce registration systems for private securities (with the exception of insurance companies, open-end investment funds, pension funds or banks and financial entities with head offices in countries that have adopted the international banking supervision standards laid down by the Basel Committee on Banking Supervision) or that pursuant to their bylaws, charter, documents or the applicable regulatory framework, have as their principal activity investing outside of the jurisdiction of their organization or domicile, or are generally restricted from doing business in their country of incorporation, it will be assumed, without admission of any proof to the contrary, that these assets belong ultimately to individuals and therefore the system for paying the tax for such individuals domiciled abroad applies to them.
An exception pursuant to a tax reform was published in the Official Gazette as Law No.25,585, which went into effect on December 31, 2002. This tax reform introduced a mechanism to collect the personal assets tax on shares issued by companies ruled by the Corporations Law, which ownership belongs to individuals domiciled in Argentina or abroad, and companies or entities domiciled abroad. In the case of companies or entities domiciled abroad, it will be assumed, without admitting any proof to the contrary, that these shares ultimately belong to individuals domiciled abroad.
The tax was assessed and paid by those companies ruled by the Corporations Law at the rate of 0.5% on the value of the shares or equity interest. The valuation of the shares, whether listed or not, must be made according to their proportional equity value. These companies may eventually seek reimbursement from the direct owner of the shares, in respect of any amounts paid to the Argentine tax authorities as a personal asset tax. Grupo Financiero Galicia has sought reimbursement for the amount paid corresponding to December 31, 2002. The Board of Directors submitted the decision on how to proceed with respect to fiscal year 2003 to the annual shareholders’ meeting held on April 22, 2004. At that meeting, our shareholders voted to suspend all claims on our shareholders for any amount unpaid for fiscal year 2002 and to have the Company absorb the amounts due for fiscal year 2003 onward, when not withheld from dividends.
Pursuant to Law No.27,260, Argentine companies that have properly fulfilled their tax obligations during the two prior fiscal years to the 2016 fiscal year, and which comply with certain other requirements, may qualify for an exemption from personal asset taxes for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017. Grupo Financiero Galicia filed this request. Notwithstanding, we cannot assure that in the future, Grupo Financiero Galicia can fulfill these requirements and maintain such exemption.
Other Taxes
There are no Argentine federal inheritance, succession or gift taxes applicable to the ownership, transfer or disposition of ADSs or class B shares. There are no Argentine stamps, issue, registration or similar taxes or duties payable by holders of ADSs or class B shares.
Tax measures related to Covid-19
Tax, Trade & Regulatory
General Tax Measures
On March 19, 2020, the tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the AFIP. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays days between March 19 and April 26 for procedural purposes.
Indirect Tax (VAT, Customs)
On March 19, 2020 the AFIP approved a reduction in the tax rate from 0.6% to 0.25%. Additionally, AFIP also approved a reduction from 1.2% to 0.5% for tax financial transactions on deposits and withdrawals from Argentine bank accounts for employers in the health care industry (i.e., diagnosis services, health insurance and pre-paid medicine companies and hospitals, among others) during a 90-day period.
Other taxes
On March 23, 2020, the deadline for e-filings broadly was expanded until June 30,2020. The tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the Federal Tax Administration. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays the days between March 19 and April 26 for procedural purposes.
Tax reporting
On March 31, 2020, through General Resolution 4689/2020, transfer pricing filings (including complementary annual study) corresponding to fiscal years ended from December 31, 2018 to September 30, 2019, both inclusive, was postponed from April 20-24 to May 2020 18-22 (the exact due date depending on the Tax ID's last digit).
Workforce: Individual and Employment Taxes
The due date for the voluntary repatriation of funds (in order not to be subject to an incremental tax rate on assets located abroad) was postponed from March 31 to April 30, 2020. Also, the due date for the payment established for those not adhering to the repatriation of funds was postponed from April 1 to May 6, 2020.
On March 25, 2020, the Labor, Employment & Social Security Ministry issued Resolution No. 219, which established that employees who could not work from home during the lockdown would be relieved from paying the employer and employee contributions due to the Integrated Social Security System. The Resolution also established that employers of new hires will benefit from a 95% reduction on the contributions they have to make to the Integrated Social Security System.
On March 31, 2020, the Labor, Employment & Social Security Ministry amended Resolution No. 219, and issued Resolution No. 279, removing any relief provided from social security contributions for those employees who cannot perform their duties from their homes during the lockdown.
Deposit and Withdrawal of Class B Shares in Exchange for ADSs
No Argentine tax is imposed on the deposit or withdrawal of class B shares in exchange for ADSs.
United States Federal Income Taxes
The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of class B shares and ADSs, as their terms are set forth in the documents or the forms thereof, relating to such securities as in existence on the date hereof, but it does not purport to address all the tax considerations that may be relevant to a decision to purchase, own or dispose of class B shares or ADSs. This summary assumes that the class B shares or ADSs will be held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), and does not address tax consequences to all categories of investors, some of which (such as dealers or traders in securities or currencies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt entities, banks, insurance companies, persons that received class B shares or ADSs as compensation for the performance of services, persons owning (or deemed to own for U.S. federal income tax purposes) 10% or more (by voting power or value) of our shares, U.S. Holders (as defined below) whose functional currency is not the Dollar and persons that hold the class B shares or ADSs as part of a position in a “straddle” or as part of a “hedging” or “conversion” transaction for U.S. federal income tax purposes) may be subject to special tax rules. Moreover, this summary does not address the U.S. federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of class B shares or ADSs.
This summary (i) is based on the Code, existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case, as in effect and available on the date hereof, and (ii) is based in part on representations of the Depository and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of class B shares or ADSs that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if such trust validly elects to be treated as a United States person for U.S. federal income tax purposes or if (a) a United States court can exercise primary supervision over its administration and (b) one or more United States persons have the authority to control all of the substantial decisions of such trust. A “Non-U.S. Holder” is a beneficial owner of class B shares or ADSs that is neither a U.S. Holder nor a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds class B shares or ADSs, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
Each prospective purchaser should consult its own tax advisor with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of class B shares or ADSs.
Ownership of ADSs in General
In general, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the class B shares represented by such ADSs. For purposes of the discussion below, we assume that intermediaries in the chain of ownership between the holder of an ADS and Grupo Financiero Galicia are acting consistently with the claiming of U.S. foreign tax credits by U.S. Holders.
Taxation of Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, for U.S. federal income tax purposes, the gross amount of distributions by Grupo Financiero Galicia of cash or property (other than certain distributions, if any, of class B shares or ADSs distributed pro rata to all shareholders of Grupo Financiero Galicia, including holders of ADSs) made with respect to the class B shares or ADSs before reduction for any Argentine taxes withheld therefrom, will constitute dividends to the extent that such distributions are paid out of Grupo Financiero Galicia’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, and will be included in the gross income of a U.S. Holder as dividend income. Subject to the discussion below under “Passive Foreign Investment Company Considerations”, non-corporate U.S. Holders generally will be taxed on such distributions on ADSs (or class B shares that are readily tradable on an established securities market in the United States at the time of such distribution) at the lower rates applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year). Non-corporate U.S. Holders that (i) do not meet a minimum holding period requirement with respect to such ADSs (or class B shares), (ii) elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4)(B) of the Code or (iii) receive dividends with respect to which they are obligated to make related payments for positions in substantially similar or related property will not be eligible for the reduced rates of taxation. In addition, dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Code.
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, if distributions with respect to the class B shares or ADSs exceed Grupo Financiero Galicia’s current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, the excess will be treated first as a tax-free return of capital to the extent of such U.S. Holder’s adjusted tax basis in the class B shares or ADSs. Any amount in excess of such adjusted basis will be treated as capital gain from the sale or exchange of such class B shares or ADSs. Grupo Financiero Galicia does not maintain calculations of its earnings and profits under U.S. federal income tax principles.
Dividends paid in Pesos will be included in the gross income of a U.S. Holder in an amount equal to the Dollar value of the Pesos on the date of receipt, which, in the case of ADSs, is the date they are received by the Depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. Any gains or losses resulting from the conversion of Pesos between the time of the receipt of dividends paid in Pesos and the time the Pesos are converted into Dollars will be treated as ordinary income or loss, as the case may be, of a U.S. Holder. Dividends received by a U.S. Holder with respect to the class B shares or ADSs will be treated as foreign source income, which may be relevant in calculating such holder’s foreign tax credit limitation. Subject to certain conditions and limitations, Argentine tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific categories of income. For this purpose, dividend income with respect to class B shares or ADSs should generally constitute “passive category income”, or in the case of certain U.S. Holders, “general category income”. The rules governing the foreign tax credit are complex. Prospective holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Subject to the discussion below under “Backup Withholding and Information Reporting”, a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received on class B shares or ADSs, unless such income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States.
Taxation of Capital Gains
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” U.S. Holders will recognize capital gain or loss for U.S. federal income tax purposes upon a sale or exchange of class B shares or ADSs in an amount equal to the difference between such U.S. Holder’s adjusted tax basis in the class B shares or ADSs and the amount realized on their disposition. In the case of a non-corporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to such gain will be lower than the maximum marginal U.S. federal income tax rate for ordinary income (other than certain dividends) if the U.S. Holder’s holding period in the class B shares or ADSs exceeds one year at the time of the sale or exchange. Gain or loss, if any, recognized by a U.S. Holder generally will be treated as United States source income or loss for U.S. foreign tax credit purposes. Consequently, a U.S. Holder may not be able to use the foreign tax credit arising from any Argentine tax imposed on the disposition of class B shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Certain limitations apply to the deductibility of capital losses for U.S. federal income tax purposes.
A U.S. Holder’s initial tax basis in the class B shares or ADSs is the Dollar value of the Pesos denominated purchase price determined on the date of purchase. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the Dollar value of the cost of such class B shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
With respect to the sale or exchange of class B shares or ADSs, the amount realized generally will be the Dollar value of the payment received, before reduction for any Argentine taxes withheld therefrom, determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition in the case of an accrual basis U.S. Holder. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis taxpayer (or, if it elects, an accrual basis taxpayer) will determine the Dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
Subject to the discussion below under “Backup Withholding and Information Reporting,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale or exchange of class B shares or ADSs unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale or exchange and certain other conditions are met.
Passive Foreign Investment Company Considerations
A non-U.S. corporation will be classified as a “passive foreign investment company”, or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (1) at least 75 percent of its gross income is “passive income” or (2) at least 50 percent of the average value of its gross assets is attributable to assets that produce “passive income” or is held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions, other than certain income derived in the active conduct of a banking business.
The application of the PFIC rules is unclear both generally and specifically with respect to banks. The United States Internal Revenue Service (“IRS”) has issued a notice and certain proposed Treasury Regulations that exclude from passive income any income derived in the active conduct of a banking business by a qualifying foreign
bank (the “Active Bank Exception”). However, the IRS notice and proposed Treasury Regulations are inconsistent in certain respects. Because final Treasury Regulations have not been issued, there can be no assurance that Grupo Financiero Galicia or its subsidiaries will satisfy the Active Bank Exception for any given taxable year.
Based on certain estimates of its gross income and gross assets (which estimates are inherently imprecise), the nature of its business, and reliance on the Active Bank Exception, Grupo Financiero Galicia believes that it should not be classified as a PFIC for the taxable year ended December 31, 2019. Grupo Financiero Galicia’s status in future years will depend on its assets and activities in those years. Grupo Financiero Galicia has no reason to believe that its assets or activities will change in a manner that would cause it to be classified as a PFIC, but there can be no assurance that Grupo Financiero Galicia will not be considered a PFIC for any taxable year. If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, the class B shares or ADSs.
If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs could make a variety of elections that may alleviate certain of the adverse tax consequences referred to above, and one of these elections may be made retroactively. However, it is expected that the conditions necessary for making certain of such elections will not apply in the case of the class B shares or ADSs. U.S. Holders should consult their own tax advisors regarding the tax consequences that would arise if Grupo Financiero Galicia were treated as a PFIC.
Reporting Requirements
Non-corporate U.S. Holders, including individuals, that hold “specified foreign financial assets”, as defined in the Treasury Regulations (which may include class B shares or ADSs), other than in an account at a U.S. financial institution or the U.S. branch of a non-U.S. financial institution, are required to report certain information relating to such assets. U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this and any other reporting requirements on their ownership and disposition of class B shares or ADSs. Failure to comply with applicable reporting requirements could result in the imposition of substantial penalties.
Backup Withholding and Information Reporting
United States backup withholding tax and information reporting requirements generally apply to certain payments to certain holders of stock.
Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, class B shares or ADSs made within the United States, or by a U.S. payor or U.S. middleman, to a holder of class B shares or ADSs (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification).
Payments of dividends on, or proceeds from the sale or redemption of, class B shares or ADSs within the United States, or by a U.S. payor or U.S. middleman, to a holder (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification) will be subject to backup withholding if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is currently 24%.
FATCA
Beginning on the date that is two years after the date on which final Treasury Regulations are published defining the term “foreign passthru payment”, Grupo Financiero Galicia may be required, pursuant to Sections 1471 through 1474 of the Code, and the Treasury Regulations promulgated thereunder (often referred to as the “Foreign Account Tax Compliance Act” or “FATCA”) to withhold U.S. tax at a 30% rate on all or a portion of any distribution on class B shares or ADSs which is treated as a “foreign passthru payment”.
Assuming that distributions from Grupo Financiero Galicia constitute “foreign passthru payments” and that Grupo Financiero Galicia enters into an agreement with the IRS to report the information required by FATCA or, if
Argentina has entered in an intergovernmental agreement with the United States (an “IGA”),that Grupo Financiero Galicia complies with such IGA, then an investor considered to have a “U.S. account” maintained by Grupo Financiero Galicia may be required to provide the information described below or be subject to U.S. withholding tax on any distribution on class B shares or ADSs that is treated as a “foreign passthru payment”. Investors in class B shares or ADSs that are financial institutions, or financial institutions that receive payments on behalf of other persons, and that have not entered into an agreement with the IRS (or otherwise established an exemption from FATCA, including pursuant to an applicable IGA) would also be subject to this U.S. withholding tax.
FATCA is particularly complex and its application to Grupo Financiero Galicia is uncertain at this time. Each holder of class B shares or ADSs should consult its own tax advisor to obtain a more detailed explanation of FATCA and to learn how it might affect such holder under its particular circumstances.
Medicare Tax on Investment Income
Certain U.S. Holders that are individuals, estates or trusts are required to pay a 3.8% tax on the lesser of (i) the U.S. Holder’s “net investment income” for the taxable year and (ii) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. Net investment income includes, among other things, dividends and capital gains from the sale or other disposition of class B shares or ADSs.
THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CLASS B SHARES OR ADSs. PROSPECTIVE HOLDERS SHOULD CONSULT AN INDEPENDENT TAX ADVISOR CONCERNING THE TAX CONSEQUENCES IN THEIR PARTICULAR CIRCUMSTANCES.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and its exhibits, may be inspected and printed or copied for a fee at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These materials are also available on the SEC’s website at http://www.sec.gov. Material submitted by us can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1506.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
General
Market risks faced by us are the risks arising from the fluctuations in interest rates and in foreign exchange rates. Our market risk arises mainly from the operations of Banco Galicia in its capacity as a financial intermediary. Our subsidiaries and are also subject to market risk. However, the amount of these risks is not significant, and they are not discussed below. Policies regarding these risks are applied at the level of our operating subsidiaries.
In compliance with the Argentine Central Bank’s regulations, based on the best practices and international standards, Banco Galicia has a Risk Management Division responsible for identifying, monitoring and actively and integrally managing the different risks Banco Galicia and its subsidiaries are exposed to (credit, financial and operational risks). The aim of the Division is to guarantee Banco Galicia’s board of directors that it is fully aware of the risks Banco Galicia is exposed to. It also creates and proposes the policies and procedures necessary to mitigate and control such risks. The Risk Management Committee, made-up of six members of the board of directors of Banco Galicia, the Chief Executive Officer and the managers of the Risk Management Division, the Planning Division and Internal Audit, is the highest corporate body to which Banco Galicia’s board of directors delegates integral risk management and the executive responsibility to define and enforce risk management policies, procedures and controls. This Committee is also responsible for setting specific limits for the exposure to each risk and approving, when applicable, temporary excesses over such limits as well as being informed of each risk position and compliance with policies.
See Item 6. “Directors, Senior Management and Employees”—“Functions of the Board of Directors of Banco Galicia”. Liquidity management is discussed in Item 5 “Operating and Financial Review and Prospects”-.B.“Liquidity and Capital Resources”. Credit risk management is discussed in Item 4. “Information on the Company”—B.“Business Overview”- “Selected Statistical Information”—“Credit Review Process” and other sections under Item 4. “Information on the Company”—B.”Business Overview”- “Selected Statistical Information” describing Grupo Galicia’s financial instruments portfolio and financial instruments loss experience.
The following sections contain information on Banco Galicia’s sensitivity to interest-rate risk and exchange-rate risk that constitute forward looking statements that involve risks and uncertainties. Actual results could differ from those projected in the forward-looking statements.
Interest Rate Risk
A distinctive and natural characteristic of financial brokerage is the existence of interest-earning assets and interest-bearing liabilities with different maturities (or different rate repricing periods) and interest rates that can be fixed or variable. This situation leads to a gap or mismatch that arises from the balance sheet and measures the imbalance between fixed- and variable-rate assets and liabilities, and results in the so-called interest-rate risk or balance sheet structural risk. A commercial bank can face the interest rate risk on both sides of its balance sheet: with regard to the income generated by assets (loans and securities) and the expenses related to the interest-bearing liabilities (deposits and other sources of funds).
The policy currently in force defines this gap as the risk that the financial margin and the economic value of equity may vary as a consequence of fluctuations in market interest rates. The magnitude of such variation is associated with the sensitivity to interest rates of the structure of the Bank’s assets and liabilities.
Aimed at managing and limiting the sensitivity of Banco Galicia's economic value and results with respect to variations in the interest rate inherent to the structure of certain assets and liabilities, the following caps have been determined:
- Limit on the gross brokerage margin for the first year.
- Limit on the net present value of assets and liabilities.
Limit on the Gross Brokerage Margin for the First Year
The effect of interest rate fluctuations on the gross brokerage margin for the first year is calculated using the methodology known as scenario simulation. On a monthly basis, gross brokerage margin for the first year is simulated in a base scenario and in a “+400 bps” scenario for peso currency and “+200 bps” scenario for dollar scenario. In order to prepare each scenario, different criteria are assumed regarding the sensitivity to interest rates of assets and liabilities, depending on the historical performance observed of the different balance sheet items. Gross brokerage margin for the first year in the “+400 bps” and “+200 bps” scenario is compared to the gross brokerage margin for the first year in the “base” scenario. The resulting difference is related to the annualized accounting gross brokerage margin for the last calendar trailing quarter available, for Banco Galicia on a consolidated basis.
The limit on a potential loss was established at 10% of the gross brokerage margin for the first year, as defined above. At fiscal year-end, the negative difference between the gross brokerage margin for the first year corresponding to the “+400/200 bps” scenario and that corresponding to the “base” scenario accounted for -4.2% of the gross brokerage margin for the first year.
The tables below show as of December 31, 2019 in absolute and percentage terms, the change in Banco Galicia’s gross brokerage margin (“GBM”) of the first year, as compared to the gross brokerage margin of the “base” scenario corresponding to various interest-rate scenarios in which interest rates change 50, 100, 150 and 200 bps from those in the “base” scenario. Banco Galicia’s net portfolio is broken down into trading and non-trading. The trading net portfolio represents primarily securities issued by the Argentine Government.
Net Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 2,812 |
|
|
| 2.54 | % |
150 |
|
| 2,106 |
|
|
| 1.91 | % |
100 |
|
| 1,403 |
|
|
| 1.27 | % |
50 |
|
| 700 |
|
|
| 0.64 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (655 | ) |
|
| (0.60 | )% |
(100) |
|
| (1,310 | ) |
|
| (1.19 | )% |
(150) |
|
| (1,962 | ) |
|
| (1.78 | )% |
(200) |
|
| (2,512 | ) |
|
| (2.37 | )% |
(1) Net interest of the first year
Net Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 136 |
|
|
| 0.12 | % |
150 |
|
| 101 |
|
|
| 0.09 | % |
100 |
|
| 68 |
|
|
| 0.06 | % |
50 |
|
| 34 |
|
|
| 0.03 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (33 | ) |
|
| (0.03 | )% |
(100) |
|
| (67 | ) |
|
| (0.06 | )% |
(150) |
|
| (100 | ) |
|
| (0.09 | )% |
(200) |
|
| (133 | ) |
|
| (0.12 | )% |
(1) Net interest of the first year
Net Non -Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 2,676 |
|
|
| 2.43 | % |
150 |
|
| 2,005 |
|
|
| 1.82 | % |
100 |
|
| 1,335 |
|
|
| 1.21 | % |
50 |
|
| 666 |
|
|
| 0.61 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (622 | ) |
|
| (0.57 | )% |
(100) |
|
| (1,243 | ) |
|
| (1.13 | )% |
(150) |
|
| (1,862 | ) |
|
| (1.69 | )% |
(200) |
|
| (2,479 | ) |
|
| (2.25 | )% |
(1) Net interest of the first year
Limit on the Net Present Value of Assets and Liabilities
The net present value of assets and liabilities is also calculated on a monthly basis and taking into account the assets and liabilities of Banco Galicia’s consolidated balance sheet. The methodology used for calculating interest rate risk is based on the net present value of the underlying asset of liability.
The net present value of the consolidated assets and liabilities, as mentioned, is calculated for a “base” scenario in which the listed securities portfolio is discounted using interest rates obtained according to yield curves determined based on the market yields of different reference bonds denominated in Pesos, foreign currency and adjusted by CER/UVA. Yield curves for unlisted assets and liabilities are also created using market interest rates. The net present value of assets and liabilities is also obtained for a second scenario called “critical”, where through a significant number of statistical simulations of the interest rate track record, a “critical” scenario is obtained as a result of the interest rate risk exposure presented by the balance sheet structure.
The economic capital is obtained from the resulting difference between the “critical” scenario and the net present value of assets and liabilities of the “base” scenario, and considering a 99.5% degree of accuracy.
The limit on interest rate risk exposure, expressed as a difference between the net present value of assets and liabilities in the “base” scenario and the “critical” scenario cannot exceed 15% of the consolidated RPC. As of December 31, 2019, the “Value at Risk” was -8.65% of the RPC.
Foreign Exchange Rate Risk
Exchange-rate sensitivity is the relationship between the fluctuations of exchange rates and Banco Galicia’s net financial income resulting from the revaluation of Banco Galicia’s assets and liabilities denominated in foreign currency. The impact of variations in the exchange rate on Banco Galicia’s net financial income depends on whether Banco Galicia has a net asset foreign currency position (the amount by which foreign currency denominated assets exceed foreign currency denominated liabilities) or a net liability foreign currency position (the amount by which foreign currency denominated liabilities exceed foreign currency denominated assets). In the first case an increase/decrease in the exchange rate results in a gain/loss, respectively. In the second case, an increase/decrease results in a loss/gain, respectively. Banco Galicia has established limits for its consolidated foreign currency mismatches for the asset and liability positions of -9 % and + 30% of Banco Galicia’s RPC. At the end of the fiscal year, Banco Galicia’s net asset position in foreign currency represented 0.6%.
As of December 31, 2019, Banco Galicia had a net asset foreign currency position of Ps.4,929 million (US$82 million) after adjusting its on-balance sheet net asset position of Ps.4,906 million (US$82 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.23 million (US$0,4 million), recorded off-balance sheet.
As of December 31, 2018, Banco Galicia had a net liability foreign currency position of Ps.978 million (US$26 million) after adjusting its on-balance sheet net liability position of Ps.1,079 million (US$29 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.101 million (US$3 million), recorded off-balance sheet.
As of December 31, 2017, Banco Galicia had a net liability foreign currency position of Ps.549 million (US$29 million), after adjusting its on-balance sheet net asset position of Ps.2,003million (US$107 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.2,552 million (US$136 million), recorded off-balance sheet.
The table below show the effects of changes in the exchange rate of the Peso vis-à-vis the Dollar on the value of Banco Galicia’s foreign currency net asset position as of December 31, 2019. As of these dates, the breakdown of Banco Galicia’s foreign currency net asset position into trading and non-trading is not presented, as Banco Galicia’s foreign currency trading portfolio was not material
|
|
|
| Value of Foreign Currency Net Position |
| |||||||||
|
|
|
| As of December 31, |
| |||||||||
|
|
|
| 2019 |
| |||||||||
Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| ||||
|
|
|
| (in millions of Pesos, except percentages) |
| |||||||||
40% |
|
|
| 6,896 |
|
|
| 1,967 |
|
|
| 40 |
| |
30% |
|
|
| 6,408 |
|
|
| 1,479 |
|
|
| 30 |
| |
20% |
|
|
| 5,915 |
|
|
| 986 |
|
|
| 20 |
| |
10% |
|
|
| 5,422 |
|
|
| 493 |
|
|
| 10 |
| |
Static (2) |
|
|
| 4,929 |
|
| - |
|
| - |
| |||
-10% |
|
|
| 4,436 |
|
|
| (493 | ) |
|
| (10 | ) | |
-20% |
|
|
| 3,943 |
|
|
| (986 | ) |
|
| (20 | ) | |
-30% |
|
|
| 3,450 |
|
|
| (1,479 | ) |
|
| (30 | ) | |
-40% |
|
|
| 2,962 |
|
|
| (1,967 | ) |
|
| (40 | ) | |
(1) Devaluation / (Revaluation).
(2) Adjusted to reflect forward purchases and sales of foreign currency without delivery of the underlying asset, registered in memorandum accounts.
Currency Mismatches
The funding and the use of funds in loans and/or investments can be carried out in assets and liabilities denominated in different currencies. As such, there is the potential for a currency mismatch between liabilities and the use thereof on assets, generating a risk. Currency risk is defined as the risk of incurring equity losses as a result of variations in the foreign currency exchange rates in which assets and liabilities are denominated.
The management of the Bank’s currency risk mismatch involves the monitoring of foreign currency-denominated assets and liabilities that may change in the short- and or mid-term. One of the available market instruments for the management of currency mismatches of assets and liabilities are “currency futures” transactions, which are traded on the MAE (MAE – OCT) and Mercado a Término de Rosario (ROFEX).
The policy framework currently in force establishes limits in terms of maximum net asset positions (assets denominated in a currency which are higher than the liabilities denominated in such currency) and net liability positions (assets denominated in a currency which are lower than the liabilities denominated in such currency) for mismatches in foreign currency, as a proportion of the Bank’s computable regulatory capital (“RPC”), on a consolidated basis.
The table below shows the composition of the Grupo Financiero Galicia’s Shareholders’ Equity as of December 31, 2019, by currency and type of adjustment:
|
| December 31, 2019 |
| |||||||||
|
| Assets |
|
| Liabilities |
|
| Gap |
| |||
|
| (in millions of Pesos) |
| |||||||||
Financial Assets and Liabilities |
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by UVA |
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted |
|
| 404,602 |
|
|
| 338,247 |
|
|
| 66,355 |
|
Foreign Currency (1) |
|
| 205,397 |
|
|
| 196,617 |
|
|
| 8,780 |
|
Other Assets and Liabilities |
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Gap |
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
Adjusted for Forward Transactions Recorded in Memo Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets and Liabilities |
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by the UVA |
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted, Including Shareholders’ Equity (2) |
|
| 378,580 |
|
|
| 312,248 |
|
|
| 66,332 |
|
Foreign Currency (1) (2) |
|
| 231,419 |
|
|
| 222,616 |
|
|
| 8,803 |
|
Other Assets and Liabilities |
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Adjusted Gap |
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
(1) In Pesos, at an exchange rate of Ps.59.8950 per US$1.
(2) Adjusted for forward sales and purchases of foreign exchange, without delivery of underlying assets and recorded in Memorandum Accounts.
As of December 31, 2019, considering the adjustments from forward transactions recorded under memorandum accounts, Grupo Financiero Galicia had net asset positions in foreign currency and Pesos adjusted and non-adjusted.
The paragraphs below describe the composition of the different currency mismatches of assets and liabilities as of December 31, 2019:
Assets and Liabilities Denominated in Foreign Currency
As of December 31, 2019, the Grupo Financiero Galicia’s assets denominated in foreign currency were mainly comprised of the following: (i) Ps.91,749 million of cash and balances from the Argentine Central Bank and correspondent banks; (ii) Ps.98,556 million for loans (principal plus interest) and other financing, including Ps.1,521 million for receivables for financial leases; (iii) Ps.5,301 million for debt securities, primarily financial trusts; (iv) Ps.5,563 million for government and private securities (v) Ps.2,404 million for other financial assets and (vi) Ps.1,753 million for assets pledged as collateral, including forward purchases of government securities.
The liabilities denominated in foreign currency consisted mainly of: (i) Ps.143,198 million for deposits (principal, interest and quotation differences); (ii) Ps.17,991 million for payables to banks and international credit entities; (iii) Ps.21,669 million for subordinated and unsubordinated notes issued by Banco Galicia; and (iv) Ps.12,896 million for other financial liabilities, mainly collections on behalf of third parties.
A net asset position of Ps.8,780 million stemmed from the consolidated balance sheet. Furthermore, forward transactions in foreign currency without delivery of the underlying asset were recorded in memorandum accounts, which, in terms of their notional value, were equal to a net asset position of Ps.22 million. Therefore, as of that date, the net position in foreign currency adjusted to reflect these transactions was a net asset position of Ps.8,803 million, equivalent to US$147 million.
Banco Galicia has set limits as regards foreign-currency mismatches at -9% of the Bank’s RPC for its net liability position and at +30% of the Bank’s RPC for its net asset position. At the fiscal year-end, Banco Galicia's net asset position in foreign currency represented 9.4% of its RPC.
Non-Adjusted Peso-Denominated Assets and Liabilities
Grupo Financiero Galicia’s non-adjusted Peso-denominated assets at December 31, 2019 were mainly comprised of the following: (i) Ps.233,353 million for loans (principal plus interest, net of allowances) including
Ps.682 million for receivables from financial leases and Ps.2,544 million for miscellaneous receivables; (ii) Ps.58,141 million for the holding of securities issued by the Argentine Central Bank. (LELIQ); (iii) Ps.46,425 million for cash and balances held at the Argentine Central Bank and correspondent banks (including the balance of escrow accounts); (iv) Ps.30,075 million for repurchase transactions; (v) Ps.15,705 million for the holding of government and private securities, including Ps.10,949 million for BOTE 2020; (vi). Ps.8,511 million for “Other Financial Assets”, out of which Ps.643 million was related to mutual funds of Tarjetas Regionales; and (vii) Ps.2,272 million pledged as collateral.
Grupo Financiero Galicia’s non-adjusted Peso-denominated liabilities at December 31, 2019 were mainly comprised of the following (i) Ps.248,588 million for deposits (principal plus interest); (ii) Ps.48,034 million for liabilities payable to stores, credit card transactions of Banco Galicia and Tarjetas Regionales; (iii) Ps.23,071 million for notes issued by Banco Galicia and Tarjetas Regionales; (iv) Ps.7,911 million for other financial liabilities; (v) Ps.4,732 million for debt incurred with local financial institutions and (vi) Ps.2,516 million for amounts payable for future transactions and transactions pending settlement of government securities and foreign currency.
The net asset position in non-adjusted Peso-denominated assets and liabilities was Ps.66,332 million at December 31, 2019.
Peso-Denominated Assets and Liabilities Adjusted by UVA
At December 31, 2019, the net asset position amounted to Ps.26,385 million, which is primarily comprised of Ps.26,515 million for loans, mainly UVA mortgage loans and Ps.1,820 million for miscellaneous receivables.
With respect to liabilities, Ps.1,175 million was related to UVA-adjusted time deposits and Ps.775 million related to balances of the unemployment fund of construction workers.
Other Assets and Liabilities
As of December 31, 2019, “Other Assets - Liabilities” mainly included the following: (i) property, plant and equipment, miscellaneous and intangible assets for Ps.44,134 million; and (ii) miscellaneous receivables for Ps.2,807 million.
As of December 31, 2019, liabilities mainly included the following: (i) Ps.16,590 million recorded in “Other Non-financial Liabilities”; (ii) Ps.10,315 million for current income tax liabilities; and (iii) Ps.2,747 million for provisions for other contingencies.
Market Risk
The exposure to portfolios of listed financial instruments, whose value varies according to the movement in their market prices, is subject to a specific policy framework that regulates the risk of incurring a loss as a consequence of the variation of the market price of financial assets whose value is subject to negotiation.
Brokerage transactions and/or investments in government securities, currencies, notes, derivative products and debt instruments issued by the Argentine Central Bank are governed by the policy that limits the maximum tolerable losses in a given fiscal year.
In order to gauge and monitor this source of risk, the model known as VaR is used, among others. This model determines intra-daily, for the Bank individually, the possible loss that could be generated by the positions in equity securities, currencies, derivative instruments, and debt securities issued by the Argentine Central Bank and currencies under certain parameters.
The parameters taken into consideration are as follows:
(i) A 99% degree of accuracy.
(ii) VaR estimates are made for holding periods of one day and “n” days, where “n” is defined as the number of days necessary to settle the position in each security.
(iii) In the case of securities, if they are new issuances, the available trading days are taken into consideration for the calculation of volatilities; if there are not enough trading days or if there are no quotations, the volatility of bonds from domestic issuers with similar risk and characteristics is used.
Banco Galicia’s policy requires that the Risk Management and Treasury Divisions agree on the parameters under which the models work, and establishes the maximum losses authorized both for equity securities, foreign-currency, Argentine Central Bank’s debt instruments and derivative products in a fiscal year. Maximum losses were established in:
Risk | Policy on Limits | |
(in millions of Pesos) | ||
Currency | 250 | |
Fixed-income instruments | 680 | |
Interest rate derivatives | 70 | |
Variable income | 1 |
Furthermore, the policy includes the regular undertaking of stress tests, the goal of which is to assess the risk positions and their results, under adverse market conditions. Finally, “contingency plans” were designed for each transaction, which include the actions to be implemented in a critical scenario.
Cross-Border Risk
Cross-border risk represents the risk of incurring equity losses as a consequence of the impairment or failure to collect on foreign credit exposures (loans, securities holdings, equity investments, and cash) abroad. It includes risks generated by entering into transactions with public or private counterparties domiciled outside of Argentina.
In order to regulate risk exposures in international jurisdictions, limits were established taking into consideration the jurisdiction’s credit rating, the type of transaction and a maximum exposure acceptable for each counterparty.
The Bank defined its policy by setting maximum exposure limits measured as a percentage of its RPC and taking into account if the counterparty is considered investment grade:
Risk | Required Credit Rating | Investment Grade | Not Investment Grade | |||
-Jurisdictional Risk | -International Rating Agency | -No limit | -Maximum limit: 5% | |||
-Counterparty Risk | -International Banking Relations -Credit Division | -Maximum limit: 15% -The limit is distributed between financial and foreign trade transactions, thus absorbing local counterparty margin | -Maximum limit: 1% -Only foreign trade transactions |
Overseas Foreign Currency Transfer Risk
With a view towards mitigating the risk resulting from a potential change in domestic laws that may affect overseas foreign currency transfers and in order to meet incurred liabilities, a policy was devised to set a limit for liabilities transferred abroad, as a proportion to total consolidated liabilities. Such ratio was fixed at 15%.
As of December 31, 2019, such exposure was 10.4% over total liabilities
Risk Exposures in the Non-Financial Public Sector
The Argentine Central Bank imposes restrictions with respect to financing for the non-financial Public Sector and establishes limits in connection with the agencies that can be aided, the types of permitted loans and maximum amounts that can be granted. Such maximum amounts are set on the basis of the Bank’s RPC.
Banco Galicia provides two types of financial assistance to such sector: (i) assistance through the issuance of government securities; and (ii) direct assistance through loans, leasing, corporate securities, discounted notes, overdrafts, guarantees granted, foreign trade transactions, payroll loans, credit cards, etc.
Risk exposures on loans granted to such sector in national, provincial and municipal jurisdictions are governed by a specific policy, applicable to agencies within such jurisdictions, decentralized entities, companies and trust funds with underlying cash flows from the non-financial public sector.
Item 12. Description of Securities Other Than Equity Securities
D. American Depositary Shares
Fees and Charges Applicable to ADS Holders
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay | For: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ps.5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ps.0.02 (or less) per ADS | Any cash distribution to ADS registered holders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the | Distribution of securities distributed to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Registration or transfer fees | Transfer and registration of shares on
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Expenses of the | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Converting foreign currency to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Taxes and other governmental charges the depositary or the custodian have
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As
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Fees and Direct and Indirect Payments Made by the Depositary to Us
Past Fees and Payments
Grupo Financiero Galicia received a payment of US$ 283,948 for fiscal year 2019, US$267,815 for fiscal year 2018 and US$286,530 for fiscal year 2017 in relation to continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses for filing annual and interim financial reports, relevant information reports, processing dividend distribution, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, and telephone and conference calls), accounting fees and legal fees.
Future Fees and Payments
The Bank of New York Mellon, as depositary, has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADSs program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees and certain accounting and legal fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consists of the expenses for filing annual and interim financial reports, relevant information reports, processing dividend distributions, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, and telephone and conference calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. There are limits on the amount of expenses for which the depositary will reimburse the Company and the amount of reimbursement available to the Company is subject to the amount of fees the depositary collects from investors in any given fiscal year.
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
We expect to receive a similar reimbursement from the depositary for expenses for the fiscal year ending December 31, 2020 to the one we received for the fiscal year ended December 31, 2019.
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Not applicable.
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Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
(a) Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended). We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with or submit to the SEC under the Exchange Act, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. Our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to provide reasonable assurance of their reliability. Notwithstanding the effectiveness of our disclosure controls and procedures, these disclosure controls and procedures cannot provide absolute assurance of achieving their objectives because of their inherent limitations. Disclosure controls and procedures are processes that involve human diligence and compliance and are subject to error in judgment. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by our disclosure controls and procedures.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
1)Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us and our consolidated subsidiaries. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. Internal control over financial reporting includes those policies and procedures that:
- pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of Grupo Galicia are being made only in accordance with authorizations of our management and directors; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
2)Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework 2013 issued by the COSO.
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Financial Assets
a.Debt Instruments197
The Group classifies as debt instruments such instruments that are considered financial liabilities for the issuer, including loans, government and private securities, bonds, and accounts receivable from customers.
Classification
As set out in IFRS 9, the Group classifies financial assets as subsequently measured at amortized cost, at fair value through in other comprehensive income or at fair value through profit or loss, on the basis of:
3)Based on our assessment, we and our management have concluded that our internal control over financial reporting was effective as of December 31, 2019.
4)The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PriceWaterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their report which is included herein.
(c) See Item 18. “Financial Statements–Report of the Independent Registered Public Accounting Firm” for our registered public accounting firm’s attestation report on the effectiveness of our internal control over financial reporting.
(d) Changes in Internal Control over Financial Reporting During the Year Ended December 31, 2019.
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Item 16A. Audit Committee Financial Expert
Mr. Daniel Llambías was the financial expert serving on our Audit Committee for fiscal year ended December 31, 2019.
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Business Model
The business model is the manner in which the Group manages a set of financial assets to achieve a specific business goal. It represents the manner in which the Group manages its financial assets in order to generate cash flows.
The Group may follow several business models; whose objective is:
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The Group's business model does not depend on the intended purpose of an individual instrument. Accordingly, this condition is not an approach for classification of instruments on an individual basis. Instead, such classification is determined at a higher level of aggregation.
The Group only reclassifies an instrument if and when the business model for managing financial assets has changed. Such reclassification takes place as from the commencement of the period in which the change has occurred. Such changes are not expected to be frequent, with no changes having occurred during the fiscal year.
Characteristics of Contractual Cash Flows
The Group assesses whether the cash flows from the aggregated instruments represent payments of solely principal and interest on the principal amount outstanding; otherwise, such instruments should be measured at fair value through profit or loss.
Based on the aforementioned, Financial Assets are classified into three categories:
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Financial assets are measured at amortized cost when:
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These financial instruments are initially recognized at fair value plus the incremental and directly attributable transaction costs, and are subsequently measured at amortized cost.
The amortized cost of a financial asset is equal to its acquisition cost, net of accumulated amortization plus accrued interest (calculated applying the effective rate method), net of impairment losses, if any.
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F-15
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Financial assets are measured at fair value through other comprehensive income when:
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These instruments are initially recognized at fair value plus the incremental and directly attributable transaction costs, and are subsequently measured at fair value through other comprehensive income. The gains and losses arising from the changes in fair value are included in other comprehensive income under a separate component of equity. Losses or impairment reversals, interest income, and exchange gains and losses are charged to income. Upon the sale or disposal of the instrument, the accumulated gains or losses previously recognized in other comprehensive income are reclassified from the income statement.
(ii)Financial assets at fair value through profit or loss:
Financial assets at fair value through profit or loss are:
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These financial instruments are initially recognized at fair value and any fair value measurement is charged to the income statement.
The Group classifies a financial instrument as held for trading if such instrument is acquired or incurred for the main purpose of selling or repurchasing it in the short term, or if it is part of a portfolio of financial instruments which are managed together and for which there is evidence of short-term profits, or if it is a derivative financial instrument not designated as a hedging instrument. Derivatives and trading securities are classified as held for trading and are measured at fair value.
Furthermore, financial assets may be measured at fair value through profit or loss when, in doing so, the Group eliminates or substantially reduces a measurement or recognition inconsistency.
b.Equity Instruments
Equity instruments are those considered as such by the issuer; in other words, instruments which do not include a contractual obligation to pay cash and which evidence a residual interest on the issuer's assets after deducting all of its liabilities.
Such instruments are measured at fair value through profit or loss, except where management has used, at the time of their initial recognition, the irrevocable option to measure them at fair value through other comprehensive income. This option is only available when instruments are not held for trading. The gains or losses of these instruments will be recognized in Other Comprehensive Income, with no reclassification, to profit or loss even if when they are realized. Dividends receivable from such instrument will be charged to income only at the time the Group becomes entitled to receive payment.
Financial Liabilities
Classification
The Group classifies its financial liabilities at amortized cost using the effective interest rate method, except for:
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Financial liabilities measured at fair value through profit or loss: The Group may, upon initial recognition, use the irrevocable option to designate a financial liability at fair value through profit or loss, if and only if exercising such option results in a better information because:
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F-16
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Financial guarantee contracts: Financial guarantee contracts require the issuer to make specified payments to reimburse the holder for a loss it may incur if a specified debtor fails to make payment when due under a debt instrument´s original modified terms.
Financial guarantee contracts and loan commitments at lower than market rates are initially measured at fair value and then remeasured at the higher of the unaccrued premium at year-end and the applicable allowance for impairment.
Derecognition of Financial Instruments
Financial Assets
A financial asset or, where applicable, a portion of a financial asset or a portion of a group of similar financial assets, is derecognized when: (i) the rights to receive cash flows from the asset have expired; or (ii) the Group has transferred its rights to receive cash flows from the asset or has assumed the obligation to remit all cash flows received to a third party without material delay under a pass-through agreement ; and substantially all risks and rewards inherent to the asset have been transferred or, if substantially all risks and rewards inherent to the asset have not been transferred or retained, when control over such asset has been transferred.
When the contractual rights to receive the cash flows generated by the asset have been transferred or a pass-through agreement has been entered into, the entity will assess whether or not, and to which extent, it has retained the risks and rewards inherent to ownership of an asset. If an entity has neither transferred nor retained substantially all risks and rewards inherent to ownership of an asset, nor has it transferred control over such asset, then it will continue recognizing such asset in its financial statements to the extent of its continuing involvement.
In this case, the entity will also recognize the related liability. The transferred asset and the related liability are measured in such a manner as to reflect the rights and obligations the Group has retained.
When continuing involvement takes the form of collateral over the transferred asset, it is measured at the lower of (i) the original carrying amount, and (ii) the maximum amount of the consideration received the entity could be required to repay.
Financial Liabilities:
A financial liability is derecognized when the payment obligation is satisfied, is canceled or expires. When an existing financial liability is exchanged for another with the same borrower under substantially different terms, or the prevailing terms are substantially modified, such exchange or modification will be treated as a derecognition of the original liability, and a new liability will be recognized. The difference between the carrying amount of the initial financial liability and the consideration paid is recognized in the consolidated income statement. When renegotiation terms do not substantially differ or the terms are not significantly modified, the flows of modified financial liabilities are discounted at the original contract rate.
1.10.DERIVATIVE FINANCIAL Instruments
Derivative Financial instruments, including foreign exchange contracts, interest rate futures, forwards, interest rate and currency swaps, and currency and interest rate options, are carried at fair value.
All derivative financial instruments are accounted for as assets when fair value is positive and as liabilities when fair value is negative, relative to the agreed-upon price. Changes in the fair value of derivative instruments are charged to income for the fiscal year.
The Group has not applied hedge accounting in these consolidated financial statements.
1.11.Repo Transactions
Reverse Repo Transactions
According to the derecognition principles set out in IFRS 9, these transactions are treated as secured loans for the risk has not been transferred to the counterparty.
Loans received in the form of reverse repo agreements are accounted for under “Repo Transactions”, classified by counterparty (i.e. financial debtors, Argentine Central Bank and non-financial debtors) and also by the type of assets received as collateral.
F-17
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At the end of each month, accrued interest income is charged against “Repo Transactions” with its corresponding offsetting entry in “Interest Income.”
The assets received and sold by the Group are derecognized at the end of the repo transaction, and an in-kind liability is recorded to reflect the obligation of delivering the security disposed of.We have adopted a code of ethics (for Grupo Financiero Galicia and its main subsidiaries) in accordance with the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. During fiscal year 2019, in lieu of the new corporate governance requirements introduced by the CNV, the Company adopted a new Code of Ethics. Additionally, we did not grant any waivers to our code of ethics during the fiscal year ended December 31, 2019. In June 2009, we adopted a Code of Best Practices in Corporate Governance in accordance with Argentine legal requirements that received some minor modifications in 2017 and 2018. During fiscal year 2019, the CNV issued Rule No. 797/2019 (modifying Rule No. 606 and the previous 516) which established new standards for the filing of the Code of Good Practices in Corporate Governance. Our Code of Ethics and our Code of Corporate governance are attached hereto as Exhibits 11.1 and 11.2.
Item 16C. Principal Accountants’ Fees and Services
The following table sets forth the total amount billed to us by our independent registered public accounting firm, Price Waterhouse & Co. S.R.L., during the fiscal years ended December 31, 2019 and 2018.
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| 2018 |
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Audit Fees |
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| 81,269 |
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| 68,522 |
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Audit Related Fees |
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| 12,300 |
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| 11,097 |
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Repo Transactions | (3,060 | ) | 461 | (2,142 | ) | |||||||
Other Financial Assets | 2,011 | 2,419 | (6,279 | ) | ||||||||
Net Loans | ||||||||||||
- Non-financial Public Sector | 13 | (5 | ) | 38 | ||||||||
- Other Financial Institutions | (788 | ) | 5,570 | (5,895 | ) | |||||||
- Non-financial Private Sector and Residents Abroad | 53,239 | (21,300 | ) | (67,535 | ) | |||||||
Other Debt Securities | 3,169 | (15,755 | ) | (1,536 | ) | |||||||
Financial Assets Pledged as Collateral | 5,090 | (2,262 | ) | 1,152 | ||||||||
Investments in Equity Instruments | (4,307 | ) | (76 | ) | 116 | |||||||
Other Non-financial Assets | (1,623 | ) | (1,737 | ) | (2,625 | ) | ||||||
Non-current Assets Held for Sale | 896 | 15,771 | 91 | |||||||||
Net Increases/(Decreases) from Operating Liabilities: | ||||||||||||
Deposits | ||||||||||||
- Non-financial Public Sector | (11,249 | ) | 10,539 | (1,025 | ) | |||||||
- Financial Sector | (644 | ) | 833 | 83 | ||||||||
- Non-financial Private Sector and Residents Abroad | (148,318 | ) | 86,666 | 30,616 | ||||||||
Liabilities at fair value through profit or loss | (1,877 | ) | 3,299 | — | ||||||||
Derivative Financial Instruments | (1,943 | ) | 1,522 | 855 | ||||||||
Other Financial Liabilities | (29,681 | ) | 12,129 | (2,683 | ) | |||||||
Provisions | 517 | 849 | 289 | |||||||||
Other Non-financial Liabilities | (805 | ) | (15,019 | ) | 4,089 | |||||||
Income Tax Collections/Payments | (10,103 | ) | (11,415 | ) | (10,159 | ) | ||||||
Net Cash (used in)/generated by Operating Activities | (10,569 | ) | 121,928 | (13,810 | ) | |||||||
In fiscal year 2019, net cash used in operating activities including the inflationary effect amounted to Ps.10,569 million, mainly due to: (i) a Ps.148,318 million net decrease in deposits to non-financial private sector and residents abroad and (ii) a Ps.29,681 million decrease in other financial liabilities. Such amount was partially offset by net cash provided by Ps.53,239 million related to a decrease in net loans and other financing to non-financial private sector and residents abroad.
In fiscal year 2018, net cash generated by operating activities including the inflationary effect amounted to Ps.121,928 million, mainly due to: (i) a Ps.86,666 million increase in deposits from non-financial private sector and residents abroad, (ii) a Ps.18,380 million decrease in debt securities measured at fair value through profit or loss and (iii) a Ps.15,771 million decrease in non-current assets held for sale, partially offset due to: (i) a Ps.21,300 million increase in loans to non-financial private sector and residents abroad, (ii) a Ps.15,755 million increase in other debt securities and (iii) Ps.15,019 million decrease in other non-financial liabilities.
In fiscal year 2017, net cash used in operating activities including the inflationary effect amounted to Ps.13,810 million, mainly due to a Ps.67,535 million increase in net loans and other financing to non-financial private sector and residents abroad and partially offset by a Ps.30,616 million increase of deposits from non-financial private sector and residents abroad.
Cash Flows from Investing Activities
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| December 31, |
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| 2019 |
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| 2018 |
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| 2017 |
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Cash Flows from Investment Activities |
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Payments: |
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Purchase of PP&E, Intangible Assets and Other Assets |
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| (7,897 | ) |
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| (5,673 | ) |
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| (5,015 | ) |
Purchase of Non-controlling Interests |
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| — |
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| (2,249 | ) |
Collections: |
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Sale of PP&E, Intangible Assets and Other Assets |
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| 2,679 |
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| 156 |
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| 1,309 |
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Net Cash used in Investment Activities |
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| (5,218 | ) |
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| (5,517 | ) |
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| (5,955 | ) |
In fiscal year 2019, net cash used in investing activities amounted to Ps.5,218 million mainly attributable to the acquisition of property, plants and equipment, intangible assets and other assets for Ps.7,897 million. Such amount was partially offset by funds provided by the sale of property, plants and equipment, intangible assets and other assets for Ps.2,679 million.
In fiscal year 2018, net cash used in investing activities amounted to Ps.5,517 million mainly attributable to the acquisition of property, plant and equipment, intangible assets and other assets for Ps.5,673 million.
In fiscal year 2017, net cash used in investing activities amounted to Ps.5,955 million mainly attributable to (i) the acquisition of property, plant and equipment, intangible assets and other assets for Ps.5,015 million, and (ii) the acquisition of non-controlling interest of Tarjetas Regionales for Ps.2,249 million.
Cash Flows from Financing Activities
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| December 31, |
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| 2019 |
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| 2018 |
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Cash Flows from Financing Activities |
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Payments: |
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Unsubordinated Debt Securities |
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| (16,884 | ) |
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| — |
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| (2,412 | ) |
Subordinated Debt Securities |
|
| — |
|
|
| — |
|
|
| (557 | ) |
Loans from Local Financial Institutions |
|
| (7,190 | ) |
|
| — |
|
|
| (1,692 | ) |
Dividends |
|
| (2,661 | ) |
|
| (2,636 | ) |
|
| (859 | ) |
Leases payment |
|
| (1,000 | ) |
|
| — |
|
|
| — |
|
Collections: |
|
|
|
|
|
|
|
|
|
|
|
|
Unsubordinated Debt Securities |
|
| — |
|
|
| 14,929 |
|
|
| — |
|
Loans from Financial Institutions |
|
| — |
|
|
| 12,042 |
|
|
| — |
|
Subordinated Debt Securities |
|
| 473 |
|
|
| 4,060 |
|
|
| — |
|
Capital increase |
|
| 132 |
|
|
| — |
|
|
| 26,125 |
|
Net Cash (used in)/generated by Financing Activities |
|
| (27,130 | ) |
|
| 28,395 |
|
|
| 20,605 |
|
In fiscal year 2019, net cash used in financing activities amounted to Ps.27,130 million due to: (i) Ps.16,884 million as a consequence of the payments of principal and interest on unsubordinated debt securities, (ii) Ps.7,190 million for payments of loans from local financial institutions, (iii) Ps.2,661 million of payments of dividends and (iv) Ps.1,000 million for leases payments.
In fiscal year 2018, financing activities provided cash in the amount of Ps.28,395 million due to: (i) issuances of unsubordinated debt securities for approximately Ps.14,929 million during 2018 and (ii) an increase in loans from local financial institutions for Ps.12,042 million.
In fiscal year 2017, financing activities provided cash in the amount of Ps.20,605 million due to: (i) paid- in capital for Ps.26,125 million, partially offset by (i) Ps.2,412 million as a consequence of the payments of principal and interest on unsubordinated debt securities, (ii) Ps.1,692 million payments of loans from local financial institutions, (iii) Ps.859 million of payments of dividends and (iv) Ps.557 million as consequence of payments of principal and interest on subordinated debt securities.
Effect of Exchange Rate on Cash and Cash Equivalents
In fiscal year 2019, the effect of the exchange rate on consolidated cash flow amounted to Ps.51,076 million, a decrease of Ps.18,086 million as compared to fiscal year 2018. The exchange rate as of December 31, 2019 was Ps.59.8950 per US$1.
In fiscal year 2018, the effect of the exchange rate on consolidated cash flow amounted to Ps.69,162 million. The exchange rate as of December 31, 2018 was Ps.37.8083 per US$1.
In fiscal year 2017, the effect of the exchange rate on consolidated cash flow amounted to Ps.10,970 million. The exchange rate as of December 31, 2017 was Ps.18.7742 per US$1.
For a description of the types of financial interests we use and the maturity profile of our debt, currency and interest rate structure, see Item 5. “Operating and Financial Review and Prospects”— A.“Operating Results”.
Liquidity Management
Liquidity Gaps
Liquidity risk is the risk that Banco Galicia does not have a sufficient level of liquid assets to meet its contractual commitments and the operational needs of the business without affecting market prices. The goal of liquidity management is to maintain an adequate level of liquid assets that allows it to meet financial commitments at contractual maturity, take advantage of potential investment opportunities and meet demand for credit. To monitor and control liquidity risk, Banco Galicia monitors and systematically calculates gaps in liquidity through the application of an internal model that is subject to periodic review.
Banco Galicia’s liquidity policy covers three areas of liquidity risk:
- Stock Liquidity: The excess amount of cash and liquid assets above the legal minimum cash requirements, taking into account the characteristics and performance of Banco Galicia’s different liabilities, as well as the nature of the assets that provide such liquidity.
- Cash Flow Liquidity: Gaps between the contractual maturities of consolidated financial assets and liabilities.
- Concentration of Deposits: The concentration of deposits is regulated in terms of the top leading customers and the following 50 customers. A maximum limit with respect to the share in deposits is determined on an individual basis for such customers.
As of December 31, 2019, the consolidated gaps between maturities of Grupo Financiero Galicia´s financial assets and liabilities based on contractual remaining maturity were as follows:
|
| December 31, 2019 |
| |||||||||||||||||
|
| Less than one Year |
|
| 1 – 5 Years |
|
| 5 – 10 Years |
|
| Over 10 Years |
|
| Total |
| |||||
|
| (in millions of Pesos, except ratios) |
| |||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due from Banks |
|
| 56,617 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56,617 |
|
Argentine Central Bank – Escrow Accounts |
|
| 109,239 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 109,239 |
|
Overnight Placements in Banks Abroad |
|
| 7,398 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,398 |
|
Loans – Public Sector |
|
| 5,290 |
|
|
| 2,637 |
|
|
| — |
|
|
| — |
|
|
| 7,927 |
|
Loans – Private Sector |
|
| 242,667 |
|
|
| 69,912 |
|
|
| 5,716 |
|
|
| 10,161 |
|
|
| 328,456 |
|
Government Securities |
|
| 60,102 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,102 |
|
Notes and Securities |
|
| 2,341 |
|
|
| 186 |
|
|
| 5 |
|
|
| — |
|
|
| 2,532 |
|
Financial Trusts |
|
| 425 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 425 |
|
Receivables from Financial Leases |
|
| 914 |
|
|
| 1,240 |
|
|
| 13 |
|
|
| — |
|
|
| 2,167 |
|
Other Financing |
|
| 521 |
|
|
| 1,761 |
|
|
| — |
|
|
| — |
|
|
| 2,282 |
|
Government Securities Forward Purchase |
|
| 31,643 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,643 |
|
Total Assets |
|
| 517,157 |
|
|
| 75,736 |
|
|
| 5,734 |
|
|
| 10,161 |
|
|
| 608,788 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in Savings Accounts |
|
| 147,625 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 147,625 |
|
Demand Deposits |
|
| 100,237 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100,237 |
|
Time Deposits |
|
| 141,394 |
|
|
| 53 |
|
|
| — |
|
|
| — |
|
|
| 141,447 |
|
Notes |
|
| 16,592 |
|
|
| 3,911 |
|
|
| 14,943 |
|
|
| — |
|
|
| 35,446 |
|
Banks and International Entities |
|
| 13,278 |
|
|
| 8,775 |
|
|
| 666 |
|
|
| — |
|
|
| 22,719 |
|
Local Financial Institutions |
|
| 4,228 |
|
|
| 2,019 |
|
|
| - |
|
|
| — |
|
|
| 6,246 |
|
Other Financing |
|
| 70,446 |
|
|
| 305 |
|
|
| — |
|
|
| — |
|
|
| 70,752 |
|
Total Liabilities |
|
| 493,800 |
|
|
| 15,063 |
|
|
| 15,609 |
|
|
| — |
|
|
| 524,472 |
|
Asset / Liability Gap |
|
| 23,357 |
|
|
| 60,673 |
|
|
| (9,875 | ) |
|
| 10,161 |
|
|
| 84,316 |
|
Cumulative Gap |
|
| 23,357 |
|
|
| 84,030 |
|
|
| 74,155 |
|
|
| 84,316 |
|
|
| 84,316 |
|
Ratio of Cumulative Gap to Cumulative Liabilities |
|
| 4.73 |
|
|
| 16.51 |
|
|
| 14.14 |
|
|
| 16.08 |
|
|
|
|
|
Ratio of Cumulative Gap to Total Liabilities |
|
| 4.45 |
|
|
| 16.02 |
|
|
| 14.14 |
|
|
| 16.08 |
|
|
|
|
|
(*) Principal plus UVA adjustment. Does not include interest.
(1) Includes, mainly, debt with retailers due to credit card operations, liabilities in connection with repurchase transactions, debt with domestic credit agencies and collections for third parties.
The table above is prepared taking into account contractual maturity. Therefore, all financial assets and liabilities with no maturity date are included in the “Less than One Year” category.
Banco Galicia must comply with a maximum limit set by its board of directors for liquidity mismatches. This limit has been established at -25% (minus 25%) for the ratio of cumulative gap to total liabilities within the first year. Banco Galicia complies with the established policy, since such gap was of 4.5% as of December 2019.
Banco Galicia Liquidity Management
The following is a discussion of Banco Galicia’s liquidity management.
Banco Galicia’s policy is to maintain a level of liquid assets that allows it to meet financial commitments at contractual maturity, take advantage of potential investment opportunities, and meet customer’s credit demand. To set the appropriate level, forecasts are made based on historical experience and on an analysis of possible scenarios. This enables management to project funding needs and alternative funding sources, as well as excess liquidity and placement strategies for such funds. As of December 31, 2019, Banco Galicia’s liquidity structure was as follows:
December 31, 2019 | ||
(in millions of Pesos) | ||
Legal Requirement | 162,620 | |
Management Liquidity | 80,267 | |
Total Liquidity | 242,887 |
Legal requirements correspond to the minimum cash requirements for Peso- and foreign currency-denominated assets and liabilities as per the rules and regulations of the Argentine Central Bank.
The assets that can be taken into account for compliance with this requirement are the balances of the Peso- and foreign currency-denominated deposit accounts at the Argentine Central Bank, the liquidity bills and Bote 2020, and the escrow accounts held at the Argentine Central Bank in favor of clearing houses.
Management liquidity, defined as a percentage over deposits and other liabilities, is made up of the following items: balances of checking accounts held by the Argentine Central Bank exceeding minimum cash requirements, Letes, Leliq and placements held by the Argentine Central Bank, overnight placements in banks abroad, net short-term interbank loans (call loans), technical cash and placements at the Argentine Central Bank in excess of the amounts necessary to cover minimum cash requirements.
Capital
Our capital management policy is designed to ensure prudent levels of capital. The following table analyzes our capital resources as of the dates indicated.
|
| As of December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in millions of Pesos, except ratios, multiples and percentages) |
| |||||||||
Shareholders’ Equity attributable to GFG |
|
| 113,942 |
|
|
| 92,492 |
|
|
| 99,260 |
|
Shareholders’ Equity attributable to GFG as a Percentage of Total Assets |
|
| 16.62 |
|
|
| 10.55 |
|
|
| 13.18 |
|
Total Liabilities as a Multiple of Shareholders’ Equity attributable to GFG |
|
| 4.99 |
|
|
| 8.45 |
|
|
| 6.54 |
|
Tangible Shareholders’ Equity (1) as a Percentage of Total Assets |
|
| 15.35 |
|
|
| 9.75 |
|
|
| 12.83 |
|
1) Tangible shareholders’ equity represents shareholders’ equity minus intangible assets.
For information on our capital adequacy and that of our operating subsidiaries, see Item 4. “Information on the Company”—B.”Business Overview”─”Selected Statistical Information”—“Regulatory Capital”.
Capital Expenditures
In the ordinary course of business, our capital expenditures are mainly related to fixed assets, construction and organizational and IT system development. Generally, our capital expenditures are not significant when compared to our total assets.
For a more detailed description of our capital expenditures in 2019 and our capital commitments for 2020, see Item 4. “Information on the Company”— A. “History and Development of the Company”─”Capital Investments and Divestitures”. For a description of financing of our capital expenditures, see —“Consolidated Cash Flows”.
E. Off-Balance Sheet Arrangements
See Item 5. “Operating and Financial Review and Prospects”─A. “Operating Results”─ “Off-Balance Sheet Arrangements” and “Contractual Obligations”.
F. Contractual Obligations
See Item 5. “Operating and Financial Review and Prospects”─A. “Operating Results”—"Contractual Obligations”.
G. Safe Harbor
These matters are discussed under “Forward-Looking Statements.”
Our ordinary and extraordinary shareholders’ meeting took place on April 28, 2020. The following table sets out the members of our Board of Directors as of that date (all of whom reside in Buenos Aires, Argentina), the positions they hold within Grupo Financiero Galicia, their dates of birth, their principal occupations and the dates of their appointment and on which their current terms will expire. Terms expire when the annual shareholders’ meeting takes place.
Name | Position | Date of Birth | Principal | Member Since | Current Term | |||||
Eduardo J. Escasany | Chairman | June 30, 1950 | Businessman | April 2005 | April 2022 | |||||
Pablo Gutierrez | Vice Chairman | December 9, 1959 | Businessman | April 2003 | April 2022 | |||||
Abel Ayerza | Director | May 27, 1939 | Businessman | September 1999 | April 2021 | |||||
Federico Braun | Director | February 4, 1950 | Businessman | September 1999 | April 2023 | |||||
Silvestre Vila Moret | Director | April 26, 1971 | Businessman | June 2002 | April 2023 | |||||
Daniel Llambías | Director | February 8, 1947 | Businessman | April 2017 | April 2023 | |||||
Pedro A. Richards | Director | November 14, 1952 | Businessman | April 2017 | April 2022 | |||||
Miguel C. Maxwell | Director | December 19, 1956 | Accountant | April 2020 | April 2021 | |||||
Claudia Raquel Estecho | Director | September 24, 1957 | Accountant | April 2019 | April 2021 | |||||
Ricardo Alberto Gonzalez | Alternate Director | June 12, 1951 | Businessman | April 2019 | April 2022 | |||||
Sergio Grinenco | Alternate Director | May 26, 1948 | Banker | April 2003 | April 2021 | |||||
Alejandro Rojas Lagarde | Alternate Director | July 17, 1937 | Lawyer | April 2000 | April 2021 | |||||
Ana María Bertolino | Alternate Director | June 1, 1951 | Lawyer | April 2019 | April 2022 |
The following is a summary of the biographies of the members of our Board of Directors:
Eduardo J. Escasany: Mr. Escasany obtained a degree in economics at the Universidad Católica Argentina. He was associated with Banco Galicia from 1973 to 2002. He was appointed to Banco Galicia’s board of directors in 1975. In 1979, he was elected as the vice chairman and from 1989 to March 21, 2002 he served as the chairman of Banco Galicia’s board of directors and its chief executive officer. He served as the vice chairman of the Argentine Bankers Association from 1989 to 1993 and the chairman of such association from 1993 to 2002. He was chairman of the Board of Directors from April 2002 to June 2002. In April 2005, he was re-elected as member of the Board of Directors and appointed as chairman in 2010. He is also a lifetime trustee and chairman of the Fundación Banco de Galicia y Buenos Aires. He is the chairman of Helena Emprendimientos Inmobiliarios S.A. and an alternate director for RPE Distribución S.A. and Hidro Distribución S.A. Mr. Escasany is Mr. Silvestre Vila Moret’s uncle.
Pablo Gutierrez: Mr. Gutierrez obtained a degree in business administration at the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1985, where he served in different positions. In April 2005, he was appointed to the board of directors of Banco Galicia. Mr. Gutierrez is regular director of Tarjetas Regionales, and Tarjeta Naranja S.A. and a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. He was an alternate director of Grupo Financiero Galicia from April 2003 to April 2010 when he was appointed as vice chairman. In April 2012, he was appointed as the vice chairman of Banco Galicia. Mr. Gutierrez is Mr. Abel Ayerza’s nephew.
Abel Ayerza: Mr. Ayerza obtained a degree in business administration at the Universidad Católica Argentina. He was associated with Banco Galicia from 1966 to 2002. Mr. Ayerza is also second vice chairman of the Fundación Banco de Galicia y Buenos Aires and the managing partner of Cribelco S.R.L., Crisabe S.R.L. and Huinca Cereales S.R.L. He has been a member of the Board of Directors since September, 1999. Mr. Ayerza is the uncle of Mr. Pablo Gutierrez.
Federico Braun: Mr. Braun obtained a degree in industrial engineering at the Universidad de Buenos Aires. He was associated with Banco Galicia from 1984 to 2002. Mr. Braun is also the chairman of Patagonia Logística S.A., Campos de la Patagonia S.A., Estancia Anita S.A., Tarjeta del Mar and S.A. Importadora y Exportadora de la Patagonia; the vice chairman of Asociación Empresaria Argentina and Asociación de Supermercados Unidos. He is a director of Inmobiliaria Financiera “La Josefina” S.A. and an alternate director of Martseb S.A. He is a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. He has been a member of the Board of Directors since September 1999.
Silvestre Vila Moret: Mr. Vila Moret obtained a degree in banking administration at the Universidad Católica Argentina. He was associated with Banco Galicia from 1997 until May 2002. Mr. Vila Moret is also vice chairman of El Benteveo S.A. and Santa Ofelia S.A. He has served as on the Board of Directors since June 2002. He is a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires. Mr. Vila Moret is the nephew of Mr. Eduardo J. Escasany.
Daniel Antonio Llambías: Mr. Llambías obtained a degree in national public accounting at the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1964. He was elected as an alternate director of Banco Galicia in September 1997 and served as a director from September 2001 until August 2009, when he was appointed Chief Executive Officer. Mr. Llambías is also a director of Tarjeta Naranja and Tarjetas Regionales and an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. He served as the chairman of ADEBA from April 2016 to April 2017. Mr. Llambías was appointed as a director of Grupo Financiero Galicia in April 2017.
Pedro Alberto Richards:Mr. Richards obtained a degree in economics from the Universidad Católica Argentina. He holds a Master of Science in Management from the Sloan School of Management at the Massachusetts Institute of Technology. He was the director of the National Development Bank. He has been associated with Banco Galicia since 1990. He was a member of the board of directors of Galicia Capital Markets S.A. between 1992 and 1994 and vice chairman of Net Investment between September 2001 and May 2007. Since August 2000, he served as Grupo Financiero Galicia’s managing director and from 2010 as our Chief Executive Officer. Mr. Richards is also Director of Galicia Warrants, and director of Galicia Administradora de Fondos S.A. Mr. Richards was an alternate director of Grupo Financiero Galicia from April 2003 until April 2005, after which he served as a director until April 14, 2010. He was appointed as a director of Grupo Financiero Galicia in April 2017.
Miguel C. Maxwell: Mr. Maxwell obtained a degree in national public accounting at the Universidad de Buenos Aires in 1979 and in 1986 he completed the High Management Program - Instituto de Altos Estudios Empresariales - Buenos Aires (Harvard Business School - University of Navarra). He developed his professional career at Deloitte & Co. S.A. (Argentina, Paraguay y Bolivia) where he entered in 1977, was promoted to Audit Partner in 1986, became Member of the Board from 1999 until May 2005, Audit Business Leader from June 2005 until May 2011 and Chairman and CEO from June 2011 until May 2017. He was also Member of the Board of Deloitte LATCO (15 Latin American countries) from June 2011 until May 2014, CEO of Deloitte LATCO from June 2014 until May 2017 and Member of the Board of Deloitte Touche Tohmatsu from June 2014 until May 2017. Mr Maxwell has substantial experience in audit, serving both domestic clients and subsidiaries of European and American Companies in Argentina. He has more than 35 years of professional experience. Currently he is the Chairman of the Advisory Board of Llorente & Cuenca (LLYC) in Argentina, Member of the Board of José M. Alladio e Hijos S.A. and regular syndic of LIAG Argentina S.A.
Claudia Raquel Estecho:Mrs. Estecho obtained a degree in accounting at the Universidad de Buenos Aires. She has also completed specialized training programs in the areas of Human Resources, Risk and Executive Management at the Universidad Austral. She held different positions at Banco Galicia since 1976 to 2016 in the areas of Finance, Planning and Risk Management. She was appointed as regular director of Grupo Financiero Galicia in April 2019.
Ricardo Alberto Gonzalez: Mr. Gonzalez served in various positions at Banco Galicia between 1973 and December 2009, mainly in the retail division and the credit department. He retired as general manager of the corporate banking division. In April 2019, he was appointed as alternate director of Grupo Financiero Galicia.
Sergio Grinenco: Mr. Grinenco obtained a degree in economics from the Universidad Católica Argentina and a master’s in business administration from Babson College in Wellesley, Massachusetts. He has been associated with Banco Galicia since 1977. He has served as an alternate director of Grupo Financiero Galicia since September 2001 and as the vice chairman from April 2003 to 2011. Mr. Grinenco is also an alternate trustee of the Fundación Banco de Galicia y Buenos Aires. In 2012, he was appointed as the chairman of Banco Galicia.
Alejandro María Rojas Lagarde: Mr. Rojas obtained a degree in law from the Universidad de Buenos Aires. He has held a variety of positions at Banco Galicia since 1963. From 1965 to January 2000, he served as the general counsel office of Banco Galicia. He has served as an alternate director of Grupo Financiero Galicia since 2000. He is also a manager of Rojas Lagarde S.R.L., alternate director of Santiago Salud S.A. and a lifetime trustee of the Fundación Banco de Galicia y Buenos Aires.
Ana María Bertolino: Mrs. Bertolino obtained a degree in law from Universidad de Buenos Aires. She joined Banco Galicia in 1972 and has held positions in Credit and Corporate Banking, until 2009. She was appointed as an alternate director of Grupo Financiero Galicia in April 2019.
Our Board of Directors may consist of between three and nine permanent members. Currently our Board of Directors has nine members. In addition, the number of alternate directors who act in the temporary or permanent absence of a director has been set at four. The regular and alternate directors are elected by the shareholders at our annual general shareholders’ meeting.
Directors and alternate directors are elected for a maximum term of three years. Mr. Sergio Grinenco is also a director of Banco Galicia. In addition, some members of our Board of Directors may serve on the board of directors of any subsidiary.
Five of our directors are members of the families that are the controlling shareholders of Grupo Financiero Galicia.
Our Audit Committee
Grupo Financiero Galicia complies with the provisions set forth by the Capital Markets Law and the regulations set forth by the CNV, which require that companies which make a public offering of shares should form an Audit Committee, and develop a charter with regulations for its operation.
Accordingly, the Board of Directors established an Audit Committee with three members.For fiscal year 2019, Messrs. Enrique Mariano Garda Olaciregui, Claudia Estecho and Daniel Llambías were the members of the Audit Committee, with Enrique Mariano Garda Olaciregui and Claudia R. Estecho considered independent pursuant to the CNV and Nasdaq requirements. On January 13, 2020, the alternate director Mr. Ricardo A. Gonzalez replaced the regular director Mr. Enrique Mariano Garda Olaciregui, who died on December 30, 2019. Mr. Gonzalez is considered an independent member of the Audit Committee pursuant to the CNV and Nasdaq requirements. All members of the Audit Committee are financially literate and have extensive managerial experience. Mr. Daniel Llambías, was the financial expert serving on our Audit Committee during fiscal year 2019. As a consequence of the resignation presented by Mr. Ricardo A. Gonzalez to his position as member of the Audit Committee, the shareholders' meeting held on April 28, 2020, elected Mr. Miguel Maxwell to replace said position. Therefore, the Board of Directors, on the same day, designated Mr. Miguel Maxwell as the new member of the Audit Committee. Mr. Maxwell is independent under the CNV and Nasdaq requirements and have an extensive and recognized managerial experience. According to the CNV rules, the Audit Committee is primarily responsible for (i) issuing a report on the Board of Directors’ proposals for the appointment of the independent auditors and the compensation for the Directors, (ii) issuing a report detailing the activities performed according to the CNV requirements, (iii) issuing the Audit Committee’s annual plan and implementing it each fiscal year, (iv) evaluating the external auditors’ independence, work plans and performance, (v) evaluating the plans and performance of the internal auditors, (vi) supervising the reliability of our internal control systems, including the accounting system, and of external reporting of financial or other information, (vii) following-up on the use of information policies on risk management at Grupo Financiero Galicia’s main subsidiaries, (viii) evaluating the reliability of the financial information to be filed with the CNV and the SEC, (ix) verifying compliance with the applicable conduct rules, and (x) issuing a report on related party transactions and disclosing any transaction where a conflict of interest exists with corporate governance bodies and controlling shareholders. The Audit Committee has access to all information and documentation that it requires and is broadly empowered to fulfill its duties. During 2019, the Audit Committee held eleven meetings.
Our Executive Committee
The Executive Committee was created to assist with the management of the Company's ordinary business and help the Board of Directors in fulfilling its duties. The Committee is composed of between two and five members of the Board of Directors and the President of the Board of Directors acts as its chairman. The duties of this committee include: gathering legal, economic, financial and business information on the Company’s subsidiaries and investee companies; making investment decisions; appointing the Company's first-tier managers; proposing a strategic plan for the Company and its subsidiaries; making annual budget estimates for the Board of Directors, and performing risk assessments. The members of the Executive Committee are Messrs. Eduardo J. Escasany, Pablo Gutiérrez, Abel Ayerza, Federico Braun and Silvestre Vila Moret.
Our Ethics, Conduct and Integrity Committee
The Ethics, Conduct and Integrity Committee was created as part of the Company’s Ethics and Integrity Program, in order to promote respect for norms and regulations, the principles of good conduct and our Code of Ethics. The objective of this Committee, (apart from complying with the duties required to be performed by applicable Argentine laws), is to monitor and review reports of conducts contrary to our Code of Ethics, and to decide whether the conduct under review violated our Code of Ethics; evaluate the evolution and effectiveness of our Ethics and Integrity Program; and plan, coordinate and supervise compliance with the relevant policies approved by this Committee. This committee is formed by two independent Directors, the Chief Financial Officer, the responsible for the Integrity program of the Company and is chaired by one of regular Directors. The members are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, José Luis Ronsini and Adrián Enrique Pedemonte.
Our Nomination and Compensation Committee
The Nomination and Compensation Committee was created to facilitate the analysis and monitoring of several issues based on good corporate governance practices. Said Committee is composed of 5 regular Directors, two of them independent and is chaired by of one independent Director. Even though under Argentine law the appointment of new members to the Board of Directors remains within exclusive power of the shareholders, this Committee assists the Board of Directors in the preparation and design of a succession plan for its members, in particular for the Chairman of the Board and the Chairman of the Audit Committee. This committee reviews the background, training and professional experience of potential candidates to serve the Board and determines their level of compensation in accordance with market standards. The members of the committee are the two independent directors, Messrs. Claudia Estecho and Miguel Maxwell, Eduardo J. Escasany, Pablo Gutierrez and Federico Braun.
Our Disclosure Committee
We have established a Disclosure Committee in response to the U.S. Sarbanes-Oxley Act of 2002. The main responsibility of this committee is to review and approve controls on the public disclosure of financial and related information, and other procedures necessary that enable our Chief Executive Officer and Chief Financial Officer to provide their certifications for the annual report we file with the SEC. The members of this committee are Messrs. Pedro A. Richards, José Luis Ronsini, Adrián Enrique Pedemonte and Ms. Mariana Saavedra. In addition, at least one of the members of this committee attends all the meetings of our principal subsidiaries’ disclosure committees.
Our Supervisory Committee
Our bylaws provide for a Supervisory Committee consisting of three members who are referred to as syndics (“syndics”) and three alternate members who are referred to as alternate syndics (“alternate syndics”). In accordance with the Corporations Law and our bylaws, the syndics and alternate syndics are responsible for ensuring that all of our actions are in accordance with applicable Argentine law. Syndics and alternate syndics are elected by the shareholders at the annual general shareholders’ meeting. Syndics and alternate syndics do not have management functions. Syndics are responsible for, among other things, preparing a report to shareholders analyzing our financial statements for each year and recommending to the shareholders whether to approve such financial statements. Alternate syndics act in the temporary or permanent absence of a syndic. Currently, there are three syndics and three alternate syndics. Syndics and alternate syndics are elected for a one-year term.
The following table shows the members of our Supervisory Committee. Each of our syndics was appointed at the ordinary shareholders’ meeting held on April 28, 2020. Terms expire when the annual shareholders’ meeting takes place or as set forth below.
Name | Position | Principal Occupation | Current Term Ends | |||
Antonio R. Garcés | Syndic | Accountant | April 2021 | |||
José Luis Gentile | Syndic | Accountant | April 2021 | |||
Omar Severini | Syndic | Accountant | April 2021 | |||
Miguel N. Armando | Alternate Syndic | Lawyer | April 2021 | |||
Fernando Noetinger | Alternate Syndic | Lawyer | April 2021 | |||
| María Matilde Hoenig(1) | Alternate Syndic | Lawyer | April 2021 |
(1) “Ad referendum” of the authorization of the Argentine Central Bank.
The following is a summary of the biographies of the members of our Supervisory Committee:
Antonio Roberto Garcés: Mr. Garcés obtained a degree in accounting from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1959 and with Grupo Financiero Galicia since 2002. In April 1985, he was appointed as an alternate director of Banco Galicia. Subsequently, he was appointed as the vice chairman of Banco Galicia in September 2001, as the chairman of the board of directors of Banco Galicia from March 2002 until August 2002 and then as the vice chairman from August 2002 until April 2003, when he was elected to serve as chairman of Banco Galicia’s board of directors until 2011. From 2003 to 2010 he was the chairman of Grupo Financiero Galicia. From April 2012 until April 2019, Mr. Garcés was appointed as a regular director of Grupo Financiero Galicia. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. Additionally, he is a regular syndic of Galicia Valores and Galicia Warrants.
José Luis Gentile: Mr. Gentile obtained a degree in accounting from the Universidad de Buenos Aires. He has provided services to Grupo Financiero Galicia since 1999 to March 2017. He served as Chief Financial Officer from 2003 to 2017. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2017. Additionally, he is a regular syndic of Galicia Valores and Galicia Warrants, and an alternate syndic of Cobranzas Regionales, Tarjeta Naranja, and of other subsidiaries of Banco Galicia and Grupo Financiero Galicia.
Omar Severini: Mr. Severini obtained a degree in accounting from the Universidad de Belgrano and a degree in finance with a concentration in capital markets from UCEMA. He has been associated with Banco Galicia since 1978 and served in positions responsible for the regular audit from 1986 to 2009. He served as Internal Auditor Manager to Banco Galicia between 2009 and 2017. He was elected as a regular syndic of Banco Galicia and Grupo Financiero Galicia in April 2018. Additionally, he is a regular syndic of Galicia Valores, Galicia Warrants, Tarjetas Regionales, Tarjeta Naranja, and of other subsidiaries of Banco Galicia and Grupo Financiero Galicia.
Miguel Norberto Armando:Mr. Armando obtained a law degree from the Universidad de Buenos Aires.He was first elected as an alternate syndic of Banco Galicia from 1986 until 2017. He also acted as an alternate syndic of Grupo Financiero Galicia between 1999 and January 2009 at which point he became a regular syndic until April 2009 and was reelected as an alternate syndic of Grupo Financiero Galicia until April 2018. He was elected as an alternate syndic of Banco Galicia and Grupo Financiero Galicia in April 2019. He is the chairman of Arnoar S.A. Mr. Armando is also a regular syndic of EBA Holding S.A., Electrigal S.A. and an alternate syndic of Galicia Valores, Galicia Seguros, Sudamericana Holding, Marin and Finisterra, among others.
Fernando Noetinger:Mr. Noetinger obtained a law degree from the Universidad de Buenos Aires.He has been associated with Banco Galicia since 1987. He was and has been an alternate syndic of Grupo Financiero Galicia from September 1999 to June 2002 and from April 2006 to date.Mr. Noetinger is also chairman of Villa Rosa S.A. and Doña Ines S.A., an alternate director of Arnoar S.A., and an alternate syndic of EBA Holding S.A., Electrigal S.A., Tarjetas Regionales, Galicia Warrants, Galicia Valores, Banco Galicia, Galicia Retiro, Galicia Seguros, and Sudamericana Holding, among others.
Maria Matilde Hoening: Mrs. Hoening obtained a law degree from the Universidad de Buenos Aires. She has been associated with Banco Galicia since 1971 and served in different positions until 2009. She was appointed as an alternate syndic of Banco Galicia and Grupo Financiero Galicia in 2020.
Management of Grupo Financiero Galicia
Our organizational structure consists of the Chief Executive Officer who reports to the Board of Directors, and the Chief Financial Officer who reports to the Chief Executive Officer and is in charge of the Financial and Accounting Division.
The Chief Executive Officer’s primary responsibilities consist of implementing the policies defined by the Board of Directors, as well as providing recommendations to the Board of Directors regarding future plans, budgets and company organization. He is also responsible for supervising the Financial and Accounting Division and assessing the attainment of performance goals of Grupo Financiero Galicia. The Chief Executive Officer also participates in meetings of the Board of Directors of the Company and certain subsidiaries.
Our Chief Executive Officer is Mr. Pedro A. Richards, please see “─ Our Board of Directors”.
Our Chief Financial Officer is Mr. José Luis Ronsini. Mr. Ronsini obtained a degree in accounting from the Universidad Católica Argentina. He holds a Master in Finance from the University of CEMA, and attended the Senior Management Program at the Universidad de San Andrés. He has been associated with Banco Galicia since 2001. He previously served as the Chief Credit Risk auditor, responsible for subsidiaries, Tarjetas Regionales, and Galicia Administradora de Fondos S.A. Mr. Ronsini has served as General Accountant of Banco Galicia since 2012.
The Financial and Accounting Division is mainly responsible for the assessment of investment alternatives, thus suggesting whether to invest or withdraw Grupo Financiero Galicia’s positions in different companies or businesses. It also plans and coordinates Grupo Financiero Galicia’s administrative services and financial resources in order to guarantee its proper management. This division also aims at meeting requirements set by several controlling authorities, managing the Integrity plan, complying with information and internal control needs and budgeting purposes. Furthermore, it includes functions aimed at planning, preparing, coordinating, controlling and providing financial information to the stock exchanges where Grupo Financiero Galicia’s shares are listed, regulatory bodies and both domestic and international investors and analysts. It facilitates the provision of materials and responses to questions sent by shareholders and investors in general through a specifically designed “contact us”, located in our web page.
Board of Directors of Banco Galicia
At the ordinary shareholders’ meeting held on April 28, 2020, the size of Banco Galicia’s board of directors was set at six members and three alternate directors. The following table sets forth the members of Banco Galicia’s board of directors as of April 28, 2020, all of whom are residents of Buenos Aires, Argentina, the position currently held by each of them, their dates of birth, their principal occupations, the dates of their appointment and the year in which their current terms will expire. The business address of the members of the Banco Galicia’s board of directors is Tte. General J. D. Perón 430, 24th floor (C1038AAI) Buenos Aires, Argentina.
Name | Position | Date of Birth | Principal Occupation | Member Since | Current Term Ends | |||||||
Sergio Grinenco | Chairman of the Board | May 26, 1948 | Banker | April 2012 | April 2023 | |||||||
Raúl Héctor Seoane | Vicechairman | July 18, 1953 | Economist | April 2012 | April 2023 | |||||||
Guillermo J. Pando | Secretary Director | October 23, 1948 | Banker | April 2003 | April 2023 | |||||||
María Elena Casasnovas (1) | Director | May 10, 1951 | Lawyer | April 2016 | April 2022 | |||||||
Juan Carlos L’Afflitto | Director | September 15, 1958 | Accountant | April 2016 | April 2022 | |||||||
Gastón Bourdieu | Director | August 31, 1956 | Agricultural Administration | April 2018 | April 2021 | |||||||
Ignacio A. González (2) | Alternate Director | April 23, 1944 | Accountant | April 2018 | April 2023 | |||||||
Verónica Lagos Mármol (2)(3) | Alternate Director | November 14, 1972 | Economist | April 2020 | April 2023 | |||||||
Augusto R. Zapiola Macnab | Alternate Director | June 27, 1947 | Economist | April 2013 | April 2022 | |||||||
(1) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Mrs. Casasnovas is an independent director. Mrs. Casasnovas is also an independent director in accordance with the Nasdaq rules.
(2) In accordance with the rules of the CNV, and pursuant to the classifications adopted by the CNV, Messrs. Gonzalez and Lagos Mármol are independent alternate directors. We would replace the independent director in case of vacancy. Messrs. González and Lagos Mármol are also independent directors in accordance with the Nasdaq rules.
(3) “Ad referendum” of the authorization of the Argentine Central Bank.
The following are the biographies of the members of the board of directors of Banco Galicia:
Sergio Grinenco:See “—Our Board of Directors”.
Raúl Héctor Seoane: Mr. Seoane obtained a degree in economics from the Universidad de Buenos Aires. He has been associated with Banco Galicia since 1988. Mr. Seoane was first elected as an alternate director of Banco Galicia from 2005 until December 2011, and in April 2012 was elected as a director. He is also a vice chairman of Distrocuyo S.A. and an alternate trustee of Fundación Banco de Galicia y Buenos Aires.
Guillermo Juan Pando:Mr. Pando has been associated with Banco Galicia since 1969. He was first elected as an alternate director of Banco Galicia from September 2001 until June 2002, and in April 2003 he was elected as a director. He is also the chairman of Santiago Salud S.A. and Distrocuyo S.A., vice chairman of Electrigal S.A., and an alternate trustee of Fundación Banco de Galicia y Buenos Aires.
María Elena Casasnovas:Mrs. Casasnovas obtained a degree in law from the Universidad Católica Argentina. She completed the Program for High Management at Universidad Torcuato Di Tella and the Senior Management Program at Universidad San Andrés. She has been associated with Banco Galicia since 1972. In April 2016, she was elected as a director.
Juan Carlos L’Afflitto:Mr. L’Afflitto obtained a degree in national public accounting at the Universidad de Buenos Aires. He worked as advisor and accountant at Morgan, Benedit y Asociados and until 1990 he was a professor at the Universidad Católica Argentina. He has been associated with Banco Galicia since 1986. In April 2016, he was elected as a director.
Gastón Bourdieu: Mr. Bourdieu obtained a degree in agricultural administration from the Universidad Argentina de la Empresa. He has been associated with Banco Galicia from 1981 to 2017. He was appointed as a director of Banco Galicia in April 2018. He is also a director of Maradona S.A.
Ignacio Abel González: Mr. González obtained a degree in national public accounting from the Universidad de Buenos Aires and a master in Auditing at Drew University, New Jersey. Previously, he served as a Member of the International Committee of Finance & Value Sharing, PricewaterhouseCoopers. He was appointed as director of Banco Galicia in April 2010 and he was elected as an alternate director in April 2018. He is also director of IDEA and syndic of Sociedad Anónima La Nación, Nuevos Medios La Nación, Publirevistas, Sociedad Anónima Importadora y Exportadora de la Patagonia, and the founder and president of P.O.D.E.R (Polo de Desarrollo Educativo Renovador).
Verónica Lagos Mármol: Mrs. Lagos Mármol obtained a degree in economics at the Universidad San Andrés. She holds a Master in Finance from Universidad CEMA. She joined Banco Galicia in 1995 at Planning and Strategic Analysis. Then she held positions in Investment Banking until 2012. She served as managing director of Capital Management Tarsus until 2016.
Augusto Rodolfo Zapiola Macnab: Mr. Zapiola Macnab obtained a degree in economics from the Pontificia Universidad Catolica Argentina. He has been associated with Banco Galicia from June 1978 until September 2002. He was elected as an alternate director of Banco Galicia in April 2013. He was elected as an alternate director on the Board of Directors of Grupo Galicia in April 2015.
Functions of the Board of Directors of Banco Galicia
Banco Galicia’s board of directors may consist of three to nine permanent members.In addition, there can be one or more alternate directors who can act during the temporary or permanent absence of a director. As of the date of this annual report, none of the directors were also employees.
The Board of Directors meets formally at least twice a week and informally every day and is responsible for the general administration of Banco Galicia, making all the decisions required for that purpose.
Members of the Bank’s Board of Directors serve in the following committees:
Human Resources and Governance Committee: This committee is comprised of four regular Directors, the General Manager and the Human Resources Area Manager. The Committee, is subdivided into the Nominating Committee and the Compensation Committee. The Nomination Sub-Committee is comprised of four regular Directors (one of them must be an independent Director), the General Manager and the Human Resources Manager. It is responsible for nominating successors for the roles of the General Manager and Area Managers and analyzing and setting the compensation to be paid to the General Manager and Area Managers. At the request of the shareholders, this sub-committee may recommend candidates for the Board of Directors. On the other hand, the Compensation Committee is comprised of three Directors, the General Managers and the Human Resources Area Manager. It is responsible for submitting, analyzing and suggesting the level of compensation to be paid to the Board of Directors, the General Manager and Area Managers, and for monitoring the performance of Department Managers and Area Managers. The Human Resources and Governance Committee meets at least once every two- months, or whenever there are issues that require urgent treatment. Its resolutions are summarized in writing in minutes and numbered chronologically.
Risk and Capital Allocation Committee: This committee is comprised of six regular Directors, the General Manager, and the Area Managers of Risks and Planning. It is responsible for approving and analyzing capital allocation, setting up risk policies and monitoring risks for the Bank. It meets at least once every two-months. Its resolutions are summarized in writing in minutes.
High Credits Committee:this committee is comprised of five regular Directors, the General Manager, and the Area Managers of Risks and Wholesale Banking. Also, when deemed necessary, the Committee may convene Directors and/or Officials from different areas of the Bank. It is responsible for approving and subscribing the qualifications and awards of operations of customers and high-risk groups. It meets at least once a week. The approved operations will be recorded in chronologically numbered forms and will be signed at least by a Director, the General Manager and the Risk Area Manager.
Low Credits Committee:this committee is comprised of three regular Directors, the General Manager, and the Risk Area Manager. Also, when deemed necessary, the Committee may convene Officials from different areas of the Bank. It is responsible for approving and subscribing the qualifications and awards of operations of customers and high-risk groups. It meets at least biweekly. The approved operations will be recorded in chronologically numbered forms and will be signed at least by a Director, the General Manager and the Risk Area Manager.
Systems Committee: this committee is comprised of four regular Directors, the General Manager, and the Integrated Corporate Services Area Manager. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank. It is responsible for supervising and approving new systems development plans and their budgets; supervising the budgetary control of developments; approving the general designs of the systems structure, the main processes, and systems to be implemented; and supervising the quality of the services, in accordance with the policies established by the Board of Directors of Banco Galicia. The Systems Committee meets at least once every three months, and whenever there are issues that require urgent treatment. Its resolutions are summarized in writing in minutes.
Audit Committee: In accordance with the regulations of the Argentine Central Bank, the Bank has an Audit Committee composed of two members of the Board of Directors and the head of the Internal Audit. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank. The Committee is responsible for assisting the Board of Directors in controlling the Bank and its controlled and investee companies, in order to reasonably ensure the following objectives: effectiveness and efficiency of operations; reliability of accounting information; compliance with applicable laws and regulations; and compliance with the objectives and strategy set by the board. The Committee meets at least once a month. Its resolutions are recorded in minutes which are transcribed in initialed books.
Money Laundering and Terrorist Financing Prevention and Control Committee: this committee is comprised of five regular Directors, the General Manager, the Manager of Assets Laundering Prevention and Compliance, the Risk Area Managers, the Financial Banking, Wholesale Banking, Retail Banking and Integrated Corporate Services Managers. The Financial Banking Area Manager is the Official with competence in financial intermediation operations. The Syndics may be invited to attend any of the meetings convened by this Committee. The Money Laundering and Terrorist Financing Prevention and Control Committee is the body in charge of planning, coordinating and ensuring compliance with the policies established in this area, upon approval by the Board of Directors. The Committee has a regime of meetings of at least once every three months and its decisions must be recorded in an initialled minutes book.
Disclosure Committee: this committee is comprised of three regular Directors, the General Manager and the Planning Area Manager. The Syndics may be invited to attend any of the meetings convened by this Committee. In the meetings held, a member of the Committee created for such purpose by Grupo Financiero Galicia S.A, shall also be present. This Committee was created to comply with the provisions of the US Sarbanes-Oxley Act. The Committee meets at least every six months or whenever there are issues requiring to be addressed. Its resolutions are summarized in writing in minutes and numbered chronologically.
Asset and Liability Committee (“ALCO”: Asset and Liability Committee):this committee is comprised of three regular Directors, the General Manager, the Managers of the Retail Banking, Wholesale Banking, Financial Banking, Risks and Planning Areas. Also, when deemed necessary, the Committee may convene Directors and Officials from different areas of the Bank and its subsidiaries. It is responsible for analyzing the collection of resources and placement in different assets, monitoring and controlling liquidity gaps, interest rates and currencies and managing such gaps. The Committee meets at least one a month. Its resolutions are recorded in writing in minutes and numbered chronologically.
Strategy and New Businesses Committee:this committee is comprised of three regular Directors, the General Manager and the Planning and Risk Area Managers. It is responsible for analyzing new business. It meets at least once a year, and whenever there are issues requiring to be addressed urgently. Its resolutions are summarized in writing in minutes and numbered chronologically.
Liquidity Crisis Committee: this committee is comprised of three regular Directors and the General Manager. Likewise, the Committee may convene those officials whose participation is deemed appropriate in relation to the issues to be addressed. It is responsible for assessing situations of liquidity crisis and deciding the actions to be implemented aimed at its resolution. It will meet when the Chairman of the Board of Directors summons it and will meet permanently until the end of the liquidity crisis. Its resolutions are summarized in writing in minutes and numbered chronologically.
Profit and Loss Report Committee: this committee is comprised of six regular Directors, the General Manager and the Planning Area Manager. It is responsible for monitoring the management and the income and evaluating macroeconomic global situations. It meets at least quarterly. Its resolutions are summarized in writing and numbered chronologically.
Compliance Committee: this committee is comprised of five regular Directors, the General Manager, the Risk Area Manager and the Manager of Assets Laundering Prevention. Also, when deemed necessary, the Committee may convene other Directors and Officials from different areas of the Bank. It is in charge of promoting respect for the rules, principles of good conduct, the Integrity Program and the Bank's Code of Ethics, and mitigating the non-compliance risk, through the definition of policies, the establishment of controls and reports in the best interest of the Bank, its employees, shareholders and customers. It meets at least once every three months, and whenever there are issues requiring to be addressed urgently. Also, when deemed necessary, the Committee may convene other Directors and Officials from different areas of the Bank. Its resolutions will be summarized in writing and numbered chronologically.
Financial Services User Protection Committee: this committee is comprised of two regular Directors, the Money Laundering Prevention and Compliance Manager, the Operational Risk Manager, the Legal Advice Manager and the Experience Manager. It is responsible for monitoring the activities carried out by managerial levels and authorities involved in the internal process of user protection, in order to properly comply with legal and regulatory standards. It meets at least once every three months, or more frequently whenever there are issues requiring to be addressed urgently. Also, when deemed necessary, the Committee may convene other Directors, the General Manager and Officials from different areas of the Bank. Its resolutions are summarized in writing and numbered chronologically. The Board of Directors is regularly informed of the decisions taken by the Committee.
Information Assets Protection Committee: this committee is comprised of two regular Directors, the Risk Area Manager, the System Manager, the Audit Manager and the Information Security Manager. It is responsible for generating/having an agile and professional environment for the definition of and decision-making regarding strategies/policies related to the information security of the Bank. It meets at least once every three months, or more frequently whenever there are issues requiring to be addressed urgently. Its resolutions are summarized in writing and numbered chronologically
These committees provide written minutes on a monthly basis to the Board of Directors.
Banco Galicia’s Supervisory Committee
Banco Galicia’s bylaws provide for a Supervisory Committee consisting of three syndics and three alternate syndics. According to the General Companies Act and the Argentine Central Bank regulations, the responsibility of the Syndics of the Supervisory Committee, both regular and alternate, responsibility is to ensure that all of the Bank’s actions are in accordance with applicable Argentine law. The Syndic and Alternate Syndic do not participate in the business administration of the Bank, and do not have and cannot have managerial functions. They are responsible, among other things, for preparing a report to the shareholders regarding the Bank’s financial statements of each fiscal year. The Syndic and Alternate Syndic are appointed by the shareholders at their Annual Ordinary Meeting, for one-year periods, and may be reelected. The Alternate Syndics act as Regular Syndics in case of temporary or permanent absence of the Syndics.
The table below shows the composition of Banco Galicia’s Supervisory Committee as they were re-elected by the annual shareholders’ meeting held on April 28, 2020.
Name | Position | Principal Occupation | Current Term Ends | |||
Omar Severini | Syndic | Accountant | April 2021 | |||
Jose Luis Gentile | Syndic | Accountant | April 2021 | |||
Antonio R. Garces (1) | Syndic | Accountant | April 2021 | |||
Fernando Noetinger | Alternate Syndic | Lawyer | April 2021 | |||
Miguel N. Armando | Alternate Syndic | Lawyer | April 2021 | |||
María Matilde Hoenig(1) | Alternate Syndic | Lawyer | April 2021 |
(1) “Ad referendum” of the authorization of the Argentine Central Bank.
For the biographies of Messrs., Omar Severini, José Luis Gentile, Antonio R. Garces, Fernando Noetinger and Miguel N. Armando and María Matilde Hoening, see “—Our Supervisory Committee”.
Banco Galicia’s Executive Officers
On October 7, 2015, Mr. Fabián Enrique Kon was appointed as the Chief Executive Officer of Banco Galicia. The Chief Executive Officer is responsible for implementing the strategic goals established by Banco Galicia’s Board of Directors and coordinating with the Managers of the Bank’s Divisions. Mr. Kon reports to the Board of Directors.
Fabián Enrique Kon: Mr. Kon obtained a degree in national public accounting from the Universidad de Buenos Aires. He has worked at Pistrelli, Diaz y Asociados, Accenture, Exolgan Container Terminal and Tradecom, in managerial positions. From 2006 to February 2014, he served as Galicia Seguros’ Chief Executive Officer and was appointed as Banco Galicia’s retail banking manager in March 2014. Mr. Kon is also the chairman of Sudamericana Holding, vice chairman of Tarjetas Regionales and director of Tarjeta Naranja.
As of the date of this annual report, the following divisions and department managers report to Banco Galicia’s Chief Executive Officer:
Division | Manager | |
Wholesale Banking | Marcelo Iraola | |
Retail Banking | German Alejandro Ghisoni | |
Financial Banking | Pablo María León | |
Risk Management | Diego Rivas | |
Comprehensive Corporate Services | María Marcela Fernie | |
People | Rafael Pablo Bergés | |
Planning | Bruno Folino | |
Customer Experience | Flavio Dogliolo |
Wholesale Banking Area Management: It is responsible for obtaining a broad segment vision and, in turn, a greater alignment with the current situation and future business perspectives. Its main responsibilities are to design, plan and implement the vision, strategies, policies and objectives for the Wholesale Banking business and for each of the customers segments and products, as well as to define and control business objectives, with the purpose of ensuring that they are adjusted competitively to the demands of the industry and to the strategic objectives of the Bank, guaranteeing the volume, profitability, quality and customer satisfaction, within the framework of the established risk levels. The following departments report to this division: Agribusinesses, Corporate Banking, Investment Banking and Capital Market, Corporate Banking, Collections and Payments, Wholesale Lending, Foreign Trade and Transactional Services and Wholesale Business Planning.
Retail Banking Area Management: It is responsible for facilitating the decision-making process, improving the commercial effectiveness of the retail banking sector and improving the customer focus. Its main responsibilities are to design, plan and implement the vision, strategies, policies and objectives for the Retail Banking business and for each of the customers segments and distribution channels, as well as to define and control business objectives, with the purpose of ensuring that they are intune with the competitive demands of the industry and the strategic
objectives of the Bank, guaranteeing volume, profitability, quality and customer satisfaction, within the framework of the established risk levels. The following departments report to this division: Every Day Banking, Products, Brand Experience, Private Banking, Branches, Customers Contact Center, Segment + Retail and Retail Banking Planning.
Financial Banking Area Management: It is responsible for administering the financial position of the Bank, negotiating rates, funds, incentives and campaigns with the different areas, and promoting the regulatory, technical and informative support in the management of assets and liabilities, in order to guarantee the control of the liquidity, rate, currency and industry risks, and compliance with current policy and legal regulations. It is also responsible for planning, proposing and implementing the strategy for the development and maintenance of commercial relations with international banks, international organizations, international investment funds and binational chambers with the purpose of consolidating the bank's image in international industries and guaranteeing the smooth development of the international business in accordance with the growth and profitability objectives set by the organization. The following departments report to this division Trading & Global Markets, Commercial, Financial Institutions, Investment Products and Global Custody, and Public Sector.
Risks Area Management: It is responsible for maintaining an effective risk management system in compliance with the best practices developed globally and optimizing the credit process in order to provide a better service to customers. It is responsible for actively and comprehensively monitoring and managing the different risks of the Bank and its subsidiaries. It is responsible for ensuring compliance with the policies, qualification and fraud prevention processes, thus guaranteeing the quality of the retail portfolio; designing and auditing mass decision tools; making decisions on the use/development of credit scoring models; conducting alignment actions to retail commercial strategies; and accompanying the business area of the retail segment, making recommendations regarding business opportunities, according to the strategic vision and policies, both external and internal, acting as the Bank's first line of defense for the retail banking segment. The following departments report to this division: Strategic Risk Management, Retail Credits, Wholesale Credits, Credit Recovery, Financial Risk and Capital Management, Analytical Solutions Center and Information Security.
Integrated Corporate Services Area Management: It is responsible for integrating all the operations of the Bank in a single area, in order to improve the efficiency of operational processes. The following departments report to this division: Operations, Systems, Corporate Infrastructure, Branch Offices Infrastructure, and Interbanking Fee-Collecting System (Sistema de Cobros Interbancarios, SCI) Planning.
People Area Management: It is responsible for incorporating and developing new talents, fostering a framework that motivates employees and maintaining an excellent working environment. The following departments report to this division: Design and Innovation, Corporate Governance and Compensation, Cultural Transformation, Administration and Human Resources Management, Persons Advice, Sustainability and Labor Relations and Corporate Security.
Planning Area Management: It is responsible for planning, coordinating and controlling the development and maintenance of budgeting, planning, accounting, and tax activities, in order to ensure that the management has the information needed for the decision-making processes, management control, and the satisfaction of the Bank's information requirements, as well as to ensure compliance with the information requirements that shall enable the Bank to obtain long-term, strategic sources of financing. It is also responsible for coordinating, planning and monitoring compliance with the strategy of liquidity, interest rates and currency gaps, within the limits of the established policies, making proposals to the Assets and Liabilities Committee (ALCO) regarding the management of such gaps in order to maximize income within the limits of policies. The following departments report to this division: Accounting, Tax Advice, Management Control, Research and Strategic Planning, Assets and Liabilities Management, Strategic Supply, Legal Advice and Institutional Relations.
Customer Experience Area Management: It is responsible for conducting and carrying out the strategy and vision of being a Customer Experience Bank, in order to achieve a strong competitive and differentiating advantage in the financial and services industry, across the entire organization, with high impact on the Bank’s and shareholders’ income. The following departments report to this division: Customer Trips, Excellence Center and Transformation Offices.
Department | Manager | |
Internal Audit | Claudio Scarso | |
Compliance and Prevention of Money Laundering | Teresa del Carmen Piraino |
Internal Audit Departmental Management: Its mission is to evaluate and monitor the efficiency, adequacy and defectiveness of the internal control systems, in order to ensure compliance with applicable laws and regulations.
Money Laundering Prevention and Compliance Departmental Management: It is responsible for coordinating and supervising compliance with the policies established by the Board of Directors regarding money laundering and terrorist financing control and prevention, ensuring compliance with current regulations and international standards. It is also responsible for planning and evaluating the information used by different Area Managements to control compliance with regulations and policies and that will be part of the reports issued by the Management to the rest of the organization and some control bodies of national and international level, and for systematically evaluating and controlling the operational risks assumed by the Bank to ensure that there are policies, procedures and adequate systems to minimize them.
The following are the biographies of Banco Galicia’s senior executive officers mentioned above:
Marcelo Iraola: Mr. Iraola obtained a degree in law from the Universidad de Buenos Aires. He completed the Program for Executive Development at Instituto Argentino de Empresas and a business management program at the Universidad de San Andres. He has been associated with Banco Galicia since 1988. He is also the chairman of Galicia Warrants, a director of Sudamericana Holding S.A. and an alternate director of Tarjetas Regionales.
Germán Alejandro Ghisoni: Mr. Ghisoni obtained a degree in business management from the Universidad Católica Argentina. He completed the Program for Executive Development at Instituto Argentino de Empresas, the Strategic Management in Banking Program at INSEAD and the Customer Centric Organitatios at Kellogg School of Management. He has been associated with Banco Galicia since 1995. He is also a director of Sudamericana Holding and an alternate director of Tarjetas Regionales and Tarjeta Naranja.
Pablo Maria Leon: Mr. Leon obtained a degree in finance from the Universidad de Palermo and two executive development programs at Instituto Argentino de Empresas and IMD in Lausanne, Switzerland. He has been associated with Banco Galicia since 1987. He is also the chairman of Galicia Valores and director of Argenclear S.A.
Diego Rivas: Mr. Rivas obtained a degree in business administration from the Universidad Argentina de la Empresa. He also completed a postgraduate degree in finance at the CEMA and management development programs at IMD in Lausanne, Switzerland, as well as a postgraduate degree in Risk Management at the Wharton School at University of Pennsylvania. Mr. Rivas has been associated with Banco Galicia since 1987. In May 2016, he was appointed Risk Control Area Manager of Banco Galicia. Mr. Rivas is also vice chairman of Ondara and an alternate director of Tarjeta Naranja.
Maria Marcela Fernie: Ms. Fernie obtained a degree in economics from the Universidad Católica Argentina. She has been associated with Banco Galicia since 2011. She is a director of COELSA and an alternate director of Tarjetas Regionales and Tarjeta Naranja.
Rafael Pablo Bergés: Mr. Bergés obtained a degree in industrial engineering from Universidad de Buenos Aires. He has been associated with Banco Galicia since August 2010. Prior to such time, he worked at Techint and at a several multinational companies in managerial positions. From 1998 to 2009, he was vice president of the Human Resources Division of Grupo Telefónica.
Bruno Folino: Mr. Folino obtained an accounting degree from the Universidad de Buenos Aires. He completed a post-graduate degree in Tax & Legal at the Universidad Austral and a Master in Science of Management from GSB Stanford University. He started his career as an auditor at Price Waterhouse & Co. before moving to the Tax & Legal Department. He has been associated with Banco Galicia since 1997 as Tax Manager and Planning Manager. In 2012, he was appointed Planning Manager.
Flavio Dogliolo: Mr. Dogliolo obtained a degree in business administration from the Universidad Católica Argentina. He received an MBA from the Universidad Austral. He was the manager of means of payments and automatic banking at Banco Bansud S.A., manager of quality and service productivity at Banco Río de la Plata S.A. and he worked in marketing database and commercial planning at Siembra AFJP S.A. He has been associated with the Bank since 1998.
Claudio Scarso: Mr. Scarso obtained a degree in systems engineering from the Universidad Argentina de la Empresa. He has been associated with Banco Galicia since 1995.
Teresa del Carmen Piraino: Ms. Piraino obtained a degree in accounting from the Universidad Argentina de la Empresa. She completed a post-graduate degree in Anti-Money Laundering and Financial Crime Prevention from the Universidad de Buenos Aires. She has been associated with Banco Galicia since 1992.
Compensation
Compensation of Our Directors
Compensation for the members of the Board of Directors is considered by the shareholders at the shareholders’ meeting once the fiscal year has ended. Directors are paid an annual fee based on the functions they carry out and they may receive partial advance payments during the year. At the ordinary shareholders’ meeting held on April 28, 2020 the compensation for the Board of Directors was set at Ps.85,824,936 for the year ended December 31, 2019. For a description of the amounts to be paid to the board of directors of Banco Galicia, see “– Compensation of Banco Galicia’s Directors and Officers” below.
We do not maintain a stock-option, profit-sharing or pension plan for the benefit of our directors.
We do not have a policy establishing any termination benefits for our directors.
Compensation of Banco Galicia’s Directors and Officers
Banco Galicia’s board of directors establishes the policy for compensation of Banco Galicia’s personnel. Banco Galicia’s managers receive a fixed compensation. Six directors are not employees of Banco Galicia. These non-employee directors receive a fixed compensation, provided that payments do not exceed the standard levels of similar entities in the Argentine financial market, a provision that is applicable to managers as well. The officers’ compensation regime includes the possibility of acquiring a retirement insurance policy. Banco Galicia does not maintain stock-option plans or pension plans or any other retirement plans for the benefit of its directors and managers. Banco Galicia does not have a policy establishing any termination benefits for its directors.
At the ordinary shareholders’ meeting held on April 28, 2020, the compensation for the directors of Banco Galicia was set for a total amount of Ps.32.6 million for the year ended December 31, 2019.
Nasdaq Corporate Governance Standards
Pursuant to Nasdaq Marketplace Rule 5615(a) (3), a foreign private issuer may follow home country corporate governance practices in lieu of the requirements of the Rule 5600 Series, provided that the foreign private issuer complies with certain sections of the Rule 5000 Series, discloses each requirement that it does not follow and describes the home relevant country practice followed in lieu of such requirement. The requirements of the Rule 5000 Series and the Argentine corporate governance practice that we follow in lieu thereof are described below:
Rule 5250 (d) – Distribution of Annual and Interim Reports. In lieu of the requirements of Rule 5250 (d), we follow Argentine law, which requires that companies make public a Spanish language annual report, including annual audited consolidated financial statements, by filing such annual report with the CNV and the BASE, within 70 calendar days of the end of the company’s fiscal year. Interim reports must be filed with the CNV and the BASE within 42 calendar days of the end of each fiscal quarter. The BASE publishes the annual reports and interim reports in the BASE bulletin and makes the bulletin available for inspection at its offices. In addition, our shareholders can receive copies of our annual reports and any interim reports upon such shareholders’ request. English language translations of our annual reports and interim reports are furnished to the SEC. We also post the English language translation of our annual reports and quarterly press releases on our website. Furthermore, under the terms of the Second Amended and Restated Deposit Agreement, dated as of June 22, 2000, among us, The Bank of New York, as depositary, and owners of ADSs issued thereunder, we are required to furnish The Bank of New York with, among other things, English language translations of our annual reports and each of our quarterly press releases. Annual reports and quarterly press releases are available for inspection by ADRs holders at the offices of The Bank of New York located at 240 Greenwich Street, New York, New York. Finally, Argentine law requires that 20 calendar days before the date of a shareholders’ meeting, the board of directors must provide to the shareholders, at the company’s executive office or through electronic means, all information relevant to the shareholders’ meeting, including copies of any documents to be considered by the shareholders (which includes the annual report), as well as proposals of the company’s board of directors.
(ii) Rule 5605 (b) (2) – Executive Sessions of Independent Directors. In lieu of the requirements of Rule 5605 (b) (2), we follow Argentine law which does not require independent directors to hold regularly scheduled meetings at which only such independent directors are present (i.e., executive sessions). Our Board of Directors as a whole is responsible for monitoring our affairs. In addition, under Argentine law, the board of directors may approve the delegation of specific responsibilities to designated directors or non-director managers of the company. Also, it is mandatory for public companies to form a supervisory committee (composed of syndics), which is responsible for monitoring the legality of the company’s actions under Argentine law and the conformity thereof with its bylaws.
(iii) Rule 5605 (d) – Compensation of Officers. In lieu of the requirements of Rule 5605 (d), we follow Argentine law, which does not require companies to form a compensation committee comprised solely of independent directors. It also is not required under Argentine law that the compensation of the Chief Executive Officer and all other executive officers be determined by either a majority of the independent directors or a compensation committee comprised solely of independent directors. Under Argentine law, the board of directors is the corporate body responsible for determining the compensation of the Chief Executive Officer and all other executive officers, so long as they are not directors. In addition, under Argentine law, the audit committee shall give its opinion about the reasonableness of management’s proposals on fees and option plans for directors or managers of the company. Finally, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2).
(iv) Rule 5605 (e) (1) – Nomination of Directors. In lieu of the requirements of Rule 5605 (e) (1), we follow Argentine law which requires that directors be nominated directly by the shareholders at the shareholders’ meeting and that they be selected and recommended by the shareholders themselves. Under Argentine law, it is the responsibility of the ordinary shareholders’ meeting to appoint and remove directors and to set their compensation. However, the Company, based on the best practices in corporate governance has created a Nomination and Compensation Committee, chaired by an independent Director and composed by 5 members of the Board of Directors. Said Committee aims to assist the Board of Directors to prepare a proposal to nominate candidates to fill its positions, to prepare and design a succession plan and to determine its compensation levels. In addition, because we are a “controlled company” as defined in Rule 5615 (c) (1), we are relying on the exemption provided thereby for purposes of complying with Rule 5615 (c) (2).
(v) Rule 5605 (c) (1) – Audit Committee Charter. In lieu of the requirements of Rule 5605 (c) (1), we follow Argentine law, which requires that audit committees have a charter but does not require that companies certify as to the adoption of the charter nor does it require an annual review and assessment thereof. Argentine law instead requires that companies prepare an annual report describing its activities and propose a plan or course of action with respect to those matters, which are the responsibility of the company’s audit committee. Such plan or course of action could, at the discretion of our audit committee, include a review and assessment of the audit committee charter.
(vi) Rule 5605 (c) (2) – Audit Committee Composition. Argentine law does not require, and it is equally not customary business practice in Argentina, that companies have an audit committee comprised solely of independent directors. Argentine law instead requires that companies establish an audit committee with at least three members comprised of a majority of independent directors as defined by Argentine law. Since fiscal year 2017, the Audit Committee is comprised of three Directors, two of them independent pursuant to the definition of independence in Rule 10 A-3 (b) (1) and the Argentine law, one of which the Board of Directors determined to be a financial expert. In addition, we have a supervisory committee (“comisión fiscalizadora”) composed of three syndics, who are responsible for monitoring the legality, under Argentine law, of the actions of our Board of Directors and the conformity of such actions with our bylaws.
(vii) Rule 5620 (c) – Quorum. In lieu of the requirements of Rule 5620 (c), we follow Argentine law and our bylaws, which distinguish between ordinary meetings and extraordinary meetings and require, in connection with ordinary meetings, that a quorum consist of a majority of stock entitled to vote. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, constitute a quorum and resolutions may be adopted by an absolute majority of the votes present. Argentine law and our bylaws require, in connection with extraordinary meetings, that a quorum consist of 60% of the stock entitled to vote. However, if such quorum is not present at the first meeting, our bylaws provide that a second meeting may be called which may be held with the number of shareholders present. In both ordinary and extraordinary meetings, decisions are adopted by an absolute majority of votes present at the meeting, except for certain fundamental matters (such as mergers and spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), anticipated liquidation, a change in our domicile to outside of Argentina, total or partial recapitalization of our statutory capital following a loss, any transformation in our corporate legal form or a substantial change in our corporate purpose) which require an approval by vote of the majority of all the stock entitled to vote (all stock being entitled to only one vote).
(viii) Rule 5620 (b) – Solicitation of Proxies. In lieu of the requirements of Rule 5620 (b), we follow Argentine law which requires that notices of shareholders’ meetings be published, for five consecutive days, in the Official Gazette and in a widely circulated newspaper in Argentina no earlier than 45 calendar days prior to the meeting and at least 20 calendar days prior to such meeting. In order to attend a meeting and be listed on the meeting registry, shareholders are required to submit evidence of their book-entry share account held at Caja de ValoresS.A. up to three business days prior to the scheduled meeting date. If entitled to attend the meeting, a shareholder may be represented by proxy (properly executed and delivered with a certified signature) granted to any other person, with the exception of a director, syndic, member of the surveillance committee (“consejo de vigilancia”), manager or employee of the issuer, which are prohibited by Argentine law from acting as proxies. In addition, our ADRs holders receive, prior to the shareholders’ meeting, a notice listing the matters on the agenda, a copy of the annual report and a voting card.
(ix) Rule 5630 (a) – Conflicts of Interest. In lieu of the requirements of Rule 5630 (a), we follow Argentine law which requires that related party transactions be approved by the audit committee when the transaction exceeds 1% of the corporation’s net worth, measured pursuant to the last audited balance sheet. Directors can contract with the corporation only on terms consistent with prevailing market terms. If the contract is not in accordance with prevailing market terms, such transaction must be pre-approved by the board of directors (excluding the interested director). In addition, under Argentine law, a shareholder is required to abstain from voting on a business transaction in which its interests may be in conflict with the interests of the company. In the event such shareholder votes on such business transaction and such business transaction would not have been approved without such shareholders’ vote, such shareholder may be liable to the company for damages and the resolution may be declared void.
Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards.
Employees
The following table shows the composition of our staff:
|
| As of December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Grupo Financiero Galicia S.A. |
|
| 3 |
|
|
| 5 |
|
|
| 4 |
|
Banco de Galicia y Buenos Aires S.A.U. |
|
| 6,118 |
|
|
| 6,294 |
|
|
| 6,214 |
|
Branches |
|
| 3,248 |
|
|
| 3,231 |
|
|
| 3,185 |
|
Head Office |
|
| 2,870 |
|
|
| 3,063 |
|
|
| 3,029 |
|
Tarjetas Regionales |
|
| 3,151 |
|
|
| 3,488 |
|
|
| 3,896 |
|
Galicia Administradora de Fondos |
|
| 27 |
|
|
| 22 |
|
|
| 19 |
|
Sudamericana Consolidated |
|
| 395 |
|
|
| 381 |
|
|
| 375 |
|
Other Subsidiaries |
|
| 24 |
|
|
| 19 |
|
|
| 24 |
|
Total |
|
| 9,718 |
|
|
| 10,209 |
|
|
| 10,532 |
|
Within the current legal framework, membership in an employee union is voluntary and there is only one union of bank employees with national representation. As of December 31, 2019, approximately 39.5% of Banco Galicia’s employees were affiliated with the national bank employee union. As of December 31, 2019, approximately 90% of Tarjetas Regionales’ work force was party to the merchant union’s Collective Bargaining Agreement No.130/75 applicable to trade employees and 6% of which were members of a labor union.
In general, during the first four months of 2019, the bank employees union and the national commerce employees union commenced negotiations on their respective collective labor agreements to establish new minimum wages. As a result of such negotiations, the minimum wage was increased for these positions. In 2019, due to the significant increases in the inflation index, the increases in the banking agreement were carried out in the months of January, March, July, September, October, November and December. In 2019, the Argentine union that represents employees in the banking sector declared general strikes. These strikes were not specific to any bank but affected all banks in Argentina. Certain of the Bank’s employees who are members of the union participated in the strike; however, the Bank was able to continue its operations during such time as not all employees are members of the union. While employees of Banco Galicia have participated in general strikes against the Argentine banking sector, Banco Galicia has not experienced a targeted strike by its employees since 1973 and Tarjetas Regionales Companies have never experienced a targeted employee strike. We believe that our relationship with our employees is stable and positive.
We have a human resources policy that aims at providing our employees possibilities for growth and personal and socio-economic achievement. We will continue our current policy of monitoring both wage levels and labor conditions in the financial industry in order to be competitive. Our employees receive fixed compensation and may receive variable compensation according to their level of achievement. We do not maintain any profit-sharing programs for our employees.
In a survey conducted in 2019 by Great Place to Work®, Banco Galicia ranked for the third consecutive year among the best companies to work in Argentina with more than 1,000 employees, while Tarjeta Naranja ranked
second for the second consecutive year among the best companies to work in Argentina with more than 1,000 employees.
The Fundación Banco de Galicia y Buenos Aires (the “Fundación”) is an Argentine non-profit organization that provides various services to Banco Galicia employees. The various activities of the Fundación include, among others, purchasing school materials for the children of Banco Galicia’s employees and making donations to hospitals and other charitable causes, including cultural events. The Fundación is managed by a Council, certain members and alternate members of which are members of our Board of Directors and supervisory committee. Members and alternate members of the Council do not receive remuneration for their services as trustees.
Share Ownership
For information on the share ownership of our directors and executive officers as of December 31, 2019, see Item 7. “Major Shareholders and Related Party Transactions—A. Major Shareholders”.
As of March 31, 2020, our capital structure was made up of class A shares, each of which is entitled to five votes and class B shares, each of which is entitled to one vote. As of March 31, 2020, we had 1,426,764,597 shares outstanding composed of 281,221,650 class A shares and 1,145,542,947 class B shares.
Our controlling shareholders are members of the Escasany, Ayerza and Braun families and the Fundación. As of March 31, 2019, the controlling shareholders owned 100% of our class A shares through EBA Holding (representing 19.7% of our total outstanding shares) and 9.6% of our class B shares (or 7.7% of our total outstanding shares), therefore directly and indirectly owning 27.4% of our shares and 59.4% of total votes.
Based on information that is available to us, the table below sets forth, as of March 31, 2020, the number of our class A and class B shares held by holders of more than 5% of each class of shares, the percentage of each class of shares held by such holder, and the percentage of votes that each class of shares represent as a percentage of our total possible votes.
Class A Shares
Name |
| Class A Shares |
| % of Class A Shares |
| % of Total Votes | |
EBA Holding S.A. |
|
| 281,221,650 |
| 100 |
| 55.1 |
Class B Shares
Name |
| Class A Shares |
| % of Class A Shares |
| % of Total Votes | |
The Bank of New York Mellon (1) |
|
| 559,661,380 |
| 48.9 |
| 21.9 |
ANSES |
|
| 264,221,559 |
| 23.1 |
| 10.4 |
EBA Holding Shareholders (2) |
|
| 110,460,196 |
| 9.6 |
| 4.4 |
(1) Pursuant to the requirements of Argentine law, all class B shares represented by ADSs are owned of record by The Bank of New York, as Depositary. The address for the Bank of New York is 101 Barclay Street, New York 10286, and the country of organization is the United States.
(2) No member holds more than 2.0% of the capital stock. Such holding includes 15,056,360 shares in the form of ADSs.
Based on information that is available to us, the table below sets forth, as of March 31, 2020, the shareholders that either directly or indirectly have more than 5% of our votes or shares.
Name |
| Shares |
| Class |
| % of Class A Shares |
| % of Total Votes | |
The Bank of New York Mellon |
|
| 559,661,380 |
| B |
| 39.2 |
| 21.9 |
EBA Holding S.A. |
|
| 281,221,650 |
| A |
| 19.7 |
| 55.1 |
ANSES. |
|
| 264,221,559 |
| B |
| 18.5 |
| 10.4 |
EBA Holding Shareholders. |
|
| 110,460,196 |
| B |
| 7.7 |
| 4.3 |
Members of the three controlling families have owned the majority of the issued share capital of Banco Galicia since 1959. Members of the Escasany family have been on the board of directors of Banco Galicia since 1923. The Ayerza and Braun families have been represented on Banco Galicia’s board of directors since 1943 and 1947, respectively. Currently, there are five members of these families on our Board of Directors.
On September 13, 1999, the controlling shareholders of Banco Galicia formed EBA Holding S.A., an Argentine corporation, which is 100% owned by our controlling shareholders. EBA Holding holds 100% of our class A shares.
Currently, EBA Holding only has class A shares outstanding. EBA Holding’s bylaws provide for certain restrictions on the sale or transfer of its class A shares. While the class A shares of EBA Holding may be transferred to any other class A shareholder of EBA Holding, any transfer of such class A shares to third parties would automatically result in the conversion of the sold shares into class B shares of EBA Holding having one vote per share. In addition, EBA Holding’s bylaws contain rights of first refusal, buy-sell provisions and tag-along rights.
As of March 31, 2020, we had 115 identified United States record shareholders (not considering The Bank of New York), of which 21 held our class B shares and 94 held our ADSs. Such United States holders, in the aggregate, held approximately 174,9 million of our class B shares, representing approximately 12.3% of our total outstanding capital stock as of such date.
Grupo Financiero Galicia and its non-banking subsidiaries are not a party to any transactions with, and have not made any loans to any (i) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by Grupo Financiero Galicia or its non-banking subsidiaries, (ii) associates (i.e., an unconsolidated enterprise in which Grupo Financiero Galicia or its non-banking subsidiaries has a significant influence or which has significant influence over Grupo Financiero Galicia or its non-banking subsidiaries), (iii) individuals owning, directly or indirectly, an interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries that gives them significant influence over Grupo Financiero Galicia or its non-banking subsidiaries, as applicable, and close members of any such individual’s family (i.e., those family members that may be expected to influence, or be influenced by, that person in their dealings with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable), (iv) key management personnel (i.e., persons that have authority and responsibility for planning, directing and controlling the activities of Grupo Financiero Galicia or its non-banking subsidiaries, including directors and senior management of companies and close members of such individual’s family) or (v) enterprises in which a substantial interest is owned, directly or indirectly, by any person described in (iii) or (iv) over which such a person is able to exercise significant influence nor are there any proposed transactions with such persons. For purposes of this paragraph, this includes enterprises owned by directors or major shareholders of Grupo Financiero Galicia or its non-banking subsidiaries that have a member of key management in common with Grupo Financiero Galicia or its non-banking subsidiaries, as applicable. In addition, “significant influence” means the power to participate in the financial and operating policy decisions of the enterprise but means less than control. Shareholders beneficially owning a 10% interest in the voting power of Grupo Financiero Galicia or its non-banking subsidiaries are presumed to have a significant influence on Grupo Financiero Galicia or its non-banking subsidiaries, as applicable.
Some of our directors and the directors of Banco Galicia have been involved in certain credit transactions with Banco Galicia as permitted by Argentine law. The Corporations Law and the Argentine Central Bank’s regulations allow directors of a limited liability company to enter into a transaction with such company if such transaction follows prevailing market conditions. Additionally, a bank’s total financial exposure to related individuals or legal entities is subject to the regulations of the Argentine Central Bank. Such regulations set limits on the amount of financial exposure that can be extended by a bank to affiliates based on, among other things, a percentage of a bank’s TIER 1. See Item 4. “Information on the Company—Argentine Banking Regulation—Lending Limits”.
Banco Galicia is required by the Argentine Central Bank to present to its board of directors, on a monthly basis, the outstanding amounts of financial assistance granted to directors, controlling shareholders, officers and other related entities, which are transcribed in the minute books of the board of directors of Banco Galicia. The Argentine Central Bank establishes that the financial assistance granted to directors, controlling shareholders, officers and other related entities must be granted on an equal basis with respect to rates, tenor and guarantees as loans granted to the general public.
In this section “total financial exposure” comprises equity interests and financial assistance (all credit related items such as loans, holdings of corporate debt securities without quotation, guarantees granted and unused balances of loans granted, among others), as this term is defined in Item 4. “Information on the Company—Argentine Banking Regulation—Lending Limits”.
“Related parties” refers mainly to our directors and the directors of Banco Galicia, our senior officers and senior officers of Banco Galicia, our syndics and Banco Galicia’s syndics, our controlling shareholders as well as all individuals who are related to them by a family relationship and any entities directly or indirectly affiliated with any of these parties, not required to be consolidated.
The following table presents the aggregate amounts of total financial exposure of Banco Galicia to related parties, the number of recipients, the average amounts and the single largest exposures as of the end of the two fiscal years ended December 31, 2018 and 2019, and as of February 29, 2020, the last date for which information is available.
|
| February 29, |
|
| December 31, |
| ||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (in millions of Pesos, except as noted) |
| |||||||||
Aggregate Total Financial Exposure |
|
| 1,147 |
|
|
| 1,102 |
|
|
| 1,471 |
|
Number of Recipient Related Parties |
|
| 265 |
|
|
| 283 |
|
|
| 329 |
|
Individuals |
|
| 213 |
|
|
| 229 |
|
|
| 269 |
|
Companies |
|
| 52 |
|
|
| 54 |
|
|
| 60 |
|
Average Total Financial Exposure |
|
| 5 |
|
|
| 4 |
|
|
| 4 |
|
Single Largest Exposure |
|
| 431 |
|
|
| 438 |
|
|
| 558 |
|
The financial assistance granted to our directors, officers and related parties by Banco Galicia was granted in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related parties, and did not involve more than the normal risk of collectability or present other unfavorable features.
In June 2011, Banco Galicia entered into an agreement with Galicia Seguros, a company indirectly controlled by Grupo Financiero Galicia, pursuant to which the Bank can offer insurance products on behalf of Galicia Seguros. In addition, they entered into an agreement for a one-year period pursuant to which Galicia Seguros insures the Bank for the balances of certain loans in the case of death of its clients. On July 31, 2014, Banco Galicia renewed both agreements with Galicia Seguros, for an additional year, with automatic deferral. Such agreements were considered to be “related party transactions” pursuant to Section 72 of the Capital Markets Law.
On March 11, 2015, Banco Galicia’s board of directors granted a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.230 million with a maturity date of June 30, 2016 (equivalent to Ps.1,014 million as of December 2019), which was increased on April 5, 2016 to Ps.300 million with a maturity date of June 30, 2017 (equivalent to Ps.961 million as of December 2019).
On March 14, 2017, Banco Galicia’s board of directors decided to grant a checking account overdraft in favor of Grupo Financiero Galicia for up to Ps.500 million with a maturity date of June 30, 2018 (equivalent to Ps.1,335 million as of December 2019), which was increased in September 2017 to Ps.854 million (equivalent to Ps.2,058 million as December 2019).
| 163 |
Consolidated Financial Statements
We have elected to provide the financial information set forth in Item 18 of this annual report.
Legal Proceedings
We are a party to the following legal proceedings:
Banco Galicia
In response to certain pending legal proceedings, Banco Galicia has recorded reserves to cover (i) various types of claims filed by customers against it (e.g., claims for thefts from safe deposit boxes, collections of checks that had been fraudulently altered, discrepancies related to deposit and payment services rendered to Banco Galicia’s customers, etc.) and (ii) estimated amounts payable under labor-related lawsuits filed against Banco Galicia by former employees.
With regard to the Autonomous City of Buenos Aires ‘claims on account of other items, Banco Galicia adhered to the System for the Settlement of Tax Liabilities in Arrears (Law No.3,461 and related regulations), which contemplated the total relief of interest and fines.
In connection with the assessments made by the tax collection authorities from the Province of Buenos Aires, under the framework of some of the processes under discussion at the Provincial Tax Court, at this stage of proceedings the judgement issued was favorable with regard to the non-taxability thereof. Therefore, Banco Galicia adhered to the System for the Regularization of Tax Debts (Regulatory Decision No.12 and related decisions), which contemplated discounts on the amounts not related to the Compensatory Bond. The Bank’s adherence to such system was communicated within the framework of the respective cases before the corresponding judicial authorities. In turn, the authorities from the Province of Buenos Aires objected to the judgment issued by the Provincial Tax Court with regard to the Compensatory Bond and requested the Court of Appeals in Administrative Matters of La Plata to reverse such decision. Banco Galicia entered an appearance and filed a motion for lack of jurisdiction, since it believed that only the Argentine Supreme Court of Justice has jurisdiction to issue a decision on such matter. On April 15, 2014, the aforementioned court sustained the motion for lack of jurisdiction and ordered the proceedings to be filed. The authorities from the Province of Buenos Aires filed an appeal before the Supreme Court of Justice of the Province of Buenos Aires, which has not issued a decision to date.
Furthermore, Banco Galicia challenged certain claims made by various jurisdictions at the corresponding administrative and/or legal proceedings. These proceedings and their possible effects are constantly being monitored by the Bank’s management. Even though Banco Galicia considers it has complied with its tax liabilities in full pursuant to current regulations, adequate reserves in respect of such proceedings have been allocated.
As of December 31, 2019, a number of claims for repayment of income tax overpaid for the 2014, 2015, 2016, 2017 and 2018 tax years for the total sum of $6,350,696,000 are based on the above-five jurisprudence establishing the unconstitutionality of rules that disenable the application of the tax inflation adjustment, which results in confiscatory situations. In the face of the delay in resolving the tax code, claims were initiated. At the close of these financial statements, the Bank does not record contingent assets derived from the above-mentioned claims.
Consumer Protection Associations, on behalf of consumers, have filed claims against Banco Galicia in connection with the collection of certain financial charges. The Bank does not believe that the resolution of these controversies will have a significant impact on its financial condition.
Tarjetas Regionales
The federal tax authority (the “AFIP”), Provincial Revenue Boards and Municipalities are in the process of conducting audits and assessments, in differing stages of completion, on the companies controlled by Tarjetas Regionales. Said agencies have served notices and made claims regarding taxes applicable to Tarjetas Regionales’s subsidiaries. Such companies are taking the corresponding administrative and legal steps in order to solve such issues. The original amount claimed for taxes totaled approximately Ps.38 million.
As of December 1, 2017, Tarjeta Naranja had filed a reimbursement claim before the AFIP regarding its income tax for the 2014-2016 fiscal years in an amount equal to Ps.580,164 (which, as adjusted for inflation, was equal to Ps 1,318 million). The claim was made considering the lack of application of the inflation adjustment standards set forth in Section VI of the Income Tax Law, which led to a substantial difference in the taxable income exceeding the reasonable limits of taxation. The same claim was presented on behalf of Tarjetas Cuyanas as of May 17, 2018, for 2014-2016, amounting Ps.145,478. Along the same lines, on September 27, 2019, the Company presented the claim pertaining to the 2017 fiscal year for the amount of Ps.326,498 in nominal value and on September 17, 2019, the one of 2018 was presented in an amount equal to Ps.973,843 in nominal value.
In the absence of a response from AFIP, on December 6, 2019, a judicial protection for default was filed with the National Tax Court for the periods 2014 and 2016 of Tarjeta Naranja S.A. On the other hand, and having elapsed the period established in the applicable regulations without obtaining AFIP’s response to the claim, on December 27, 2019, a repetition claim was filed before the Federal Justice for the 2014 and 2016 fiscal years of Tarjeta Cuyanas S.A. and fiscal year 2018 of Tarjeta Naranja S.A. The same lawsuit was filed on December 30, 2019 for the 2017 fiscal year of Tarjeta Naranja S.A. Both claims remain pending before the AFIP.
Based on the opinion of tax advisors, each of Tarjeta Naranja and Tarjetas Cuyanas believes that such claims are unfounded and that the taxes related to such claims have been correctly calculated in accordance the tax regulations then in force and Argentine case law.
Dividend Policy and Dividends
Dividend Policy
Grupo Financiero Galicia’s policy for the distribution of dividends considers, among other factors, the obligatory nature of establishing a legal reserve, the Company’s financial condition and its indebtedness, the business requirements of affiliated companies and, mainly, that the profits recorded in the financial statements are, to a great extent, income from holdings and not realized and liquid profits, a requirement of Section 68 of the Corporations Law so that it is possible to distribute them as dividends. The proposal to distribute dividends arising from such analysis has to be approved at the shareholders’ meeting that discusses the Financial Statements corresponding to each fiscal year.
We may only declare and pay dividends out of our retained earnings representing the profit realized on our operations and investments. The Corporations Law and our bylaws state that no profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per share basis. As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired until it is fully restored. The legal reserve is not available for distribution to shareholders.
Our ability to pay dividends to our shareholders principally depends on (i) our net income, (ii) cash availability, (iii) indebtedness and (iv) applicable legal requirements.
Holders of our ADSs will be entitled to receive any dividends payable in respect of our underlying class B shares. We will pay cash dividends to the ADSs depositary in Pesos, although we reserve the right to pay cash dividends in any other currency, including Dollars. The ADSs deposit agreement provides that the depositary will convert cash dividends received by the ADSs depositary in Pesos to Dollars and, after deduction or upon payment of fees and expenses of the ADSs depositary and deduction of other amounts permitted to be deducted from such cash payments in accordance with the ADSs deposit agreement (such as for unpaid taxes by the ADSs holders in connection with personal asset taxes or otherwise), will make payment to holders of our ADSs in Dollars.
Dividends
Grupo Financiero Galicia
As a holding company, our principal source of cash from which to pay dividends on our shares is dividends or other intercompany transfers from our subsidiaries, primarily Banco Galicia. Due to dividend restrictions contained in Banco Galicia’s loan agreements in connection with Banco Galicia’s foreign debt restructuring - that were lifted when such debt was fully paid during fiscal year 2016 - and in some Argentine Central Bank regulations, our ability to distribute cash dividends to our shareholders has been materially and adversely affected since late 2001 until 2010, when Banco Galicia obtained the authorization to distribute its profits.
After the end of fiscal year 2011, the Argentine Central Bank modified its regulations governing the minimum capital requirements and dividend distribution and, consequently, Banco Galicia was not able to pay dividends. However, for fiscal year 2018 the Bank had met the aforementioned regulations and its shareholders´ meeting held on April 25, 2019 approved the distribution of cash dividends for Ps.1,500 million, equivalent to Ps.1,996 million as of December 2019.
During 2018, Grupo Financiero Galicia paid cash dividends for Ps.1,200 million for fiscal year 2017, representing Ps.0.8411 per share, equivalent to Ps.2,487 million as of December 2019. During 2019, Grupo Financiero Galicia paid cash dividends for fiscal year 2018 in the amount of Ps.2,000 million, representing Ps.1.401773 per share, equivalent to Ps.2,661 million as of December 2019.
Due to the fact that most of the profits in fiscal year 2019 correspond to holdings income that does not meet the requirements for distribution set forth in Section 68 of the Corporations’ Law and given Grupo Financiero Galicia’s financial condition, a proposal was made by the Board of Directors to increase the discretionary reserve for future dividends´ distribution and to grant to said Board of Directors the ability to partially affect said reserve to pay cash dividends, in an amount equal to Ps.4,000 million, (which represents 280.3546%) with regard to 1,426,764,597
class A and B ordinary shares, with a face value of Ps.1 each, subject to Banco Galicia´s capacity to pay cash dividends in at least the same amount.
The aforementioned proposal was approved by shareholders´ meeting held on April 28, 2020.
Due to the provisions recently passed by the Argentine Central Bank within the framework of the COVID-19 pandemic, the capacity of the Argentine financial system to pay cash dividends has been suspended until June 30, 2020.
Pursuant Act No.27,260, Grupo Financiero Galicia neither reimbursed nor withheld any amount for tax purposes on the dividends paid for fiscal year 2018.
Pursuant to regulations in force Grupo Financiero Galicia may withhold some amount for tax purposes on the dividends to be paid for fiscal year 2019.
For more information on requirements for dividend distribution, see Item 4. “Information on the Company”-B.”Business Overview”— “Argentine Banking Regulation”—“Profit Distribution”.
BancoGalicia
During the ordinary and extraordinary shareholders’ meeting held on April 25, 2019, the shareholders approved the payment of a cash dividend, in the amount of Ps.1,500 million, corresponding to the 2018 fiscal year.
Taking into consideration the Argentine Central Bank rules regarding the distribution of profits, as explained above, the shareholders’ meeting held on
April 28, 2020, approved the allocation of Ps.7,046 million to a legal reserve and Ps.28,184 million to a voluntary reserve for the future distribution of profits, and delegated to the Board of Directors the ability to release funds from said voluntary reserve in an amount up to Ps.10,000 million.
Sudamericana Holding
During the year 2019, Sudamericana held an extraordinary shareholders’ meeting, at which shareholders approved the payment of a cash dividend in the amount of Ps.599.8 million.
The outbreak and spread of a virus called “coronavirus” (or COVID-19) by the end of 2019 has given rise to various consequences in both business and economic activities throughout the world. Due to the exceptional nature of the virus and its rapid global spread, in March 2020 several governments around the world implemented drastic measures to contain the spread, including, but not limited to, the closure of borders and the ban on travel to and from certain parts of the world for a period of time, and the mandatory isolation of its citizens together with the cessation of non-essential commercial activities. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic.
Internationally, the main economic indicators welcomed 2020 with mixed signals. On the one hand in January of 2020, industrial activity grew, which was partially connected to a deceleration of the decline of the industrial activity in the Eurozone. Optimism regarding the commercial relationship between the United States and China also grew after both countries signed the first phase of a potential commercial agreement. On the other hand, industrial activity growth decelerated in both the United States and China, political tension between the United States and Iran escalated, and major stock indices saw an initial downturn by the end of January from all-time highs as concerns for the COVID-19 virus grew. Meanwhile, the Federal Reserve of the United States maintained cautious monetary policies, amid flight-to-quality strategies on behalf of investors and falling prices among commodities.
Since February, global attention has been focused on the spread of COVID-19 (which was initially concentrated in China), but which began spreading globally during this month. Beginning in February, the spread of COVID-19 had already significantly impacted China and exacerbated the economic deceleration in such country and lead to an economic deceleration in the United States. Other economies, however, continued to show improving indicators. Meanwhile, Donald Trump was acquitted from charges of abuse of power and obstruction of justice,
clearing his political path for the scheduled presidential elections later in the year, and the U.S. Federal Reserve Bank maintained its cautious stance noticing the potential spread of COVID-19, and investors and commodities upheld their warning tendencies. Also, major stock indices, which had reached new historical maximum levels, started to fell significantly while reflecting increased levels of uncertainty and volatility.
Starting in March, COVID-19 spread worldwide. The virus started affecting Europe, but by month-end the United Stated became the global epicenter of infected individuals, while China was able to control the spread within its territory. That same month Saudi Arabia announced the highest oil price cut over the last 30 years in response to the collapse of the OPEC+ agreement. As a result, economic indicators reacted positively to more stability in China but otherwise experience dramatic falls to negative levels in the rest of the world, while stock indices registered generalized declines with historical maximum volatility levels not seen since the 2008 crisis. In addition, investors boosted their flight-to-quality strategies and the price of commodities in general fell, mainly led by an extreme decrease in oil price.
The immediate response of policymakers around the globe to the Coronavirus was unprecedented, both in the monetary and tax front. Among others, in March the U.S. Federal Reserve Bank held unscheduled meetings and decided to reduce its rates range by a total of 150 bps to a range from 0.0% to 0.25%. The latter aligned with an also extraordinary quarantine lockdown in some states of the United States, a search to flatten the curve of infected individuals, which would in turn prevent health systems’ saturation. Since then, investors continue to reassess their projections of the potential economic and credit impact of COVID-19 and of the current historically low oil international prices, enabling a partially recover in global assets. Yet, uncertainty and volatility continue to prevail and there is uncertainty regarding the impact on the international economies for 2020.
For more information on the impact of COVID-19, see “Forward Looking Statements”— Item 3.D “Risk Factors” — Item 5.“Operating Results-Principal Trends”.
In Argentina, the National Government implemented a number of measures aimed at reducing the movement of the population, establishing the social, preventive and mandatory isolation from March 20 to May 10, 2020 (which could be extended if the government considers it necessary), where only individuals working in the rendering/production of essential services and products were allowed to leave their homes.
The final significance of the coronavirus outbreak and its impact on both world and local economies is unknown, and the governments might take even stricter measures, which are not predictable at this time. As of the date of issuance of our financial statements, Grupo Financiero Galicia has not experienced significant impacts on its income as a result of this pandemic. Although the Argentine Central Bank established a series of measures in order to minimize physical contact between people, the most relevant being the limitation of customer service at our branches, the operations of our subsidiaries are maintained and we expect them to continue in spite of the difficulties. However, the extent to which the coronavirus will affect the future of Grupo Galicia’s business, and the impact on the income from our operations cannot be reasonably quantified if this situation extends for a longer period of time.
The Board of Directors is closely monitoring this situation and taking all the required measures within their reach to preserve human life and our operations.
Item 9. The Offer and Listing
Shares and ADSs
Our class B shares are listed on the BYMA, MAE and the Córdoba Stock Exchange under the symbol “GGAL”. Our class B shares have started listing on MAE since October 28, 2015. Our ADSs, each representing ten class B shares, are listed on the Nasdaq Capital Market, under the symbol “GGAL”. Our ADSs have been listed on Nasdaq Capital Market since August 2002. Previously, our ADSs had been listed on the Nasdaq National Market since July 24, 2000.
Argentine Securities Market
The principal and oldest exchange for the Argentine securities market is the BYMA. The BYMA started operating in 1854 and handles the largest proportion of all equity trading in Argentina. Securities listed on the BYMA include corporate equity and debt securities and government securities. Debt securities listed on the BYMA may also be listed on the MAE. The MERVAL, which is affiliated with the BYMA, was founded in 1929 and is the largest stock market in Argentina. The MERVAL is a private entity, whose capital is integrated by shares admitted to public offer regime and was registered as a market by the CNV under N°16. Its capital is composed of 104 outstanding shares and there are 182 agents registered as members of the Merval market. We are member of the Merval through Galicia Valores, a subsidiary that owns one share. Additionally, the Bank, within the framework of the Capital Market Law, was authorized by the CNV to act as a settlement and clearing agent and trading agent-comprehensive, and was added as member of the MERVAL.
Trading on the BYMA is conducted through a trading platform introduced during 2017 called Milleniun, from 11:00 a.m. to 5:00 p.m. each business day of the year. The Millenium software is a computer trading platform system that permits trading in debt and equity securities that can be accessed by brokers directly from workstations located at their offices. As a result of an agreement between the MERVAL and the MAE, equity securities are traded exclusively on the BYMA and corporate and government debt securities are traded on the MAE and the BYMA. Currently, all transactions relating to listed corporate and government debt securities can be effected said trading platform. In addition, a substantial over-the-counter market exists for private trading in listed debt securities and, prior to the agreement described above, equity securities. Such trades are reported on the MAE.
Although companies may list all of their capital stock on the BYMA, in most cases the controlling shareholders retain the majority of a company’s capital stock. This results in only a relatively small percentage of most companies’ stock being available for active trading by the public on the BYMA. Even though individuals have historically constituted the largest group of investors in Argentina’s equity markets, in recent years, banks and insurance companies have shown an interest in these markets. Argentine mutual funds, by contrast, continue to have very low participation in the market. Although 104 companies had equity securities listed on the BYMA as of December 31, 2019, the 10 most-traded companies on the exchange accounted for approximately 65.2% of total trading value during 2019, from a 67.3% recorded in 2018. Our shares were the first-most traded shares on the BYMA in 2019, with a 24.2% share of trading volume from an also first position of 15.2% recorded during 2018.
The Córdoba Stock Exchange is another important stock market in Argentina. Securities listed on the Córdoba Stock Exchange include both corporate equity and debt securities and government securities. Through an agreement with the BYMA, all the securities listed on the BYMA are authorized to be listed and subsequently traded on the Córdoba Stock Exchange. Thus, many transactions that originate on the Córdoba Stock Exchange relate to companies listed on the BYMA and such trades are subsequently settled in Buenos Aires.
The MAE is a self-regulated organization that is supervised by the CNV. MAE is mainly comprised by private banks, either composed by national or foreign capital, national banks, provincial banks, municipal Banks, cooperative Banks, financial companies, exchange companies and agents.
Market Regulations
The CNV oversees the Argentine securities markets and is responsible for authorizing public offerings of securities and supervising brokers, public companies and mutual funds, among others. Argentine pension funds and insurance companies are regulated by separate Argentine government agencies, while financial institutions are regulated mainly by the Argentine Central Bank. The Argentine securities markets are regulated by the CNV.
In compliance with the provisions of Law No.20,643 and the Decrees No.659/74 and No.2220/80, most debt and equity securities traded on the exchanges and the MAE must, unless otherwise instructed by the shareholders, be deposited in Caja de Valores S.A., which is the central securities depositary of Argentina, that provides deposit facilities for securities and mainly acts as a transfer and paying agent in connection therewith. It also handles settlement of securities transactions and operates the computerized exchange information system.
Pursuant to the requirements of the Argentine regulations, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the U.S. and other countries. However, the CNV has taken steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for non-compliance.
In order to offer securities to the public in Argentina, an issuer must meet certain requirements of the CNV regarding assets operating history, management and other matters, and only securities for which an application for a public offering has been approved by the CNV may be listed on the corresponding stock exchange. This approval does not imply any kind of certification of assurance related to the merits of the quality of the securities, or the solvency of the issuer. Issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements, as well as various other periodic reports, with the CNV and the corresponding stock exchange.
Securities can currently be freely traded on the Argentine markets, however the Argentine government has periodically imposed certain restrictions regarding access by residents and non-residents to the local MLC and to transfers of foreign exchange abroad. See Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market”.
On June 2019, the CNV passed Resolution No. 797/19, aimed to strengthen the good practices in corporate governance, emphasizing the principles established by the Organization for Economic Cooperation and Development (“OECD”) and requiring a stronger commitment from the listing companies regarding the compliance with corporate governance.
The Capital Markets Law (Law No. 26,831), which became effective on January 2013, replacing Law No.17,811 and Decree No. 677/01, regulates the capital markets transactions as well as the supervision, control and disciplinary and regulatory powers of the CNV. The Capital Markets Law is supplemented by the CNV Rules.
On May 9, 2018, the Argentine Congress passed Law No. 27,440 (Ley de Financiamiento Productivo) with the goal of developing the Argentine domestic capital markets. The draft bill provides for the amendment and update of the Argentine Capital Markets Law, the Mutual Funds Law and the Argentine Negotiable Obligations Law, among others. Such Law No. 27,440 sets forth certain regulations that are intended to provide SMEs with better access to financial instruments and to create an electronic credit invoice for MSMEs that replace the receipts from sales and credit invoices. Also, Law No. 27,440 improves the regulatory framework by introducing the new products for SMEs, such as discounts for access to the financial market and the amendment of certain tax provisions, regulations relating to derivatives and the promotion of a financial inclusion program.
Item 10. Additional Information
B. Memorandum and Articles of Association
Description of Our Bylaws
General
Set forth below is a brief description of certain provisions of our bylaws and Argentine law and regulations with regard to our capital stock. Your rights as a holder of our capital stock are subject to Argentine corporate law, which may differ from the corporate laws of other jurisdictions. This description is not purported to be complete and is qualified in its entirety by reference to our bylaws, Argentine law and the rules of the BYMA, the Córdoba Stock Exchange as well as the CNV. A copy of our bylaws has been filed with and can be examined at the CNV in Buenos Aires and the SEC in Washington, D.C.
We were incorporated on September 14, 1999, as a stock corporation under the laws of Argentina and registered on September 30, 1999, with the IGJ, under corporate registration number 14,519 of Book 7, Volume of Stock Corporations. Our domicile is in Buenos Aires, Argentina. Under our bylaws, our duration is until June 30, 2100 and we are exclusively a financial and investment company (as stated in “Chapter 2. Purpose. Article 3.” of our bylaws). This duration may be extended by resolution taken at an extraordinary shareholders’ meeting.
Our bylaws do not contain any provision governing the ownership threshold above which shareholder ownership must be disclosed.
Outstanding Capital Stock
Our total subscribed and paid-in share capital as of December 31, 2019, amounted to Ps.1,426,764,947, composed of class A shares and class B shares, each with a par value of Ps.1. The following table presents the number of our shares outstanding as of December 31, 2019, and the voting interest that the shares represent.
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|
|
|
|
|
|
|
|
| December 31, 2019 |
| |
Shares |
| Number of Shares |
|
| % of Capital Stock |
|
| % of Voting Rights |
| |||
Class A Shares |
|
| 281,221,650 |
|
|
| 19.71 | % |
|
| 55.11 |
|
Class B Shares |
|
| 1,145,542,947 |
|
|
| 80.29 | % |
|
| 44.89 |
|
Total |
|
| 1,426,764,597 |
|
|
| 100 | % |
| 100 |
| |
Registration and Transfer
The class B shares are book-entry common shares held through Caja de Valores. Caja de Valores maintains a stock registry for us and only those persons listed in such registry will be recognized as our shareholders. Caja de Valores periodically delivers to us a list of the shareholders as at a certain date.
The class B shares are transferable on the books of Caja de Valores. Caja de Valores records all transfers in our registry. Within 10 days of any such transfer, Caja de Valores is required to confirm the registration of transfer with the transferor.
Voting Rights
At shareholders’ meetings, each class A share is entitled to five votes and each class B share is entitled to one vote. However, class A shares are entitled to only one vote in certain matters, such as:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange;
- a transformation in our legal corporate form;
- a fundamental change in our corporate purpose;
- a change of our domicile to outside Argentina;
- a voluntary termination of our public offering or listing authorization;
- our continuation following a delisting or a mandatory cancellation of our public offering or listing authorization;
- a total or partial recapitalization of our statutory capital following a loss; and
- the appointment of syndics.
All distinctions between our class A shares and our class B shares will be eliminated upon the occurrence of any of the following change of control events:
- EBA Holding sells 100% of its class A shares;
- EBA Holding sells a portion of our class A shares to a third person who, when aggregating all our class A shares with our class B shares owned by such person, if any, obtains 50% plus one vote of our total votes; or
- the current shareholders of EBA Holding sell shares of EBA Holding that will allow the buyer to exercise more than 50% of the voting power of EBA Holding at any general shareholders’ meeting of EBA Holding shareholders, except for transfers to other current shareholders of EBA Holding or to their heirs or their legal successors or to entities owned by any of them.
Limited Liability of Shareholders
Shareholders are not liable for our obligations. Shareholders’ liability is limited to the payment of the shares for which they subscribe. However, shareholders who have a conflict of interest with us and do not abstain from voting may be held liable for damages to us. Also, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or our bylaws may be held liable for damages to us or to third parties, including other shareholders, resulting from such resolutions.
Directors
Our bylaws provide that the Board of Directors shall be composed by at least three and at most nine members, as decided at a general ordinary shareholders’ meeting. To be appointed to our Board of Directors, such person must have been presented as a candidate by shareholders who represent at least 10% of our voting rights, at least three business days before the date the general ordinary shareholders’ meeting is to be held. Our bylaws do not state an age limit over which the directors cannot serve on our board.
At each annual shareholders’ meeting, the term of one third of the members of our Board of Directors (no fewer than three directors) expires and their successors are elected to serve for a term of three years. The shareholders’ meeting shall have the power to fix a shorter period (one or two years) for the terms of office of one, several or all the directors. This system of electing directors is intended to help maintain the continuity of the board. Alternate directors replace directors until the following general ordinary shareholders’ meeting is held. Directors may also be replaced by alternate directors if a director will be absent from a board meeting. The Board of Directors is required to meet at least once every month and anytime any one of the directors or syndics so requests.
Our bylaws state that the Board of Directors may decide to appoint an executive committee and/or a delegate director.
Our bylaws do not provide for any arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to in this annual report was selected as a director or member of senior management.
Additionally, pursuant to our bylaws, any borrowing powers on behalf of the Company are granted to our Board of Directors. Our Board of Directors has the power to delegate these borrowing powers to our directors through a power of attorney and currently certain of our directors have powers of attorney to negotiate the terms of and borrow money on behalf of the Company. Furthermore, as stated by our bylaws, the chairman of our Board of Directors is also the legal representative of the Company. Although our bylaws do not expressly address a director’s power to vote on proposals, arrangements or contracts in which the director has a material interest, pursuant to customary Argentine business practice and certain tenants of Argentine corporate law, our directors do not vote on proposals, arrangements or contracts in which the director has a material interest.
Appointment of Directors and Syndics by Cumulative Voting
The Corporations Law provides for the use of cumulative voting to enable minority shareholders to appoint members of the board of directors and syndics. Upon the completion of certain requirements, shareholders are entitled to appoint up to one third of the vacancies to be filled on the board of directors by cumulative voting. Each shareholder voting cumulatively has the number of votes resulting from multiplying the number of votes to which such shareholder would normally be entitled by the number of vacancies to be filled. Such shareholder may apportion his votes or cast all such votes for one or a number of candidates not exceeding one third of the vacancies to be filled.
Compensation of Directors
The Corporations Law and the CNV establish rules regarding the compensation of directors. The maximum amount of aggregate compensation that the members of the board of directors may receive, including salaries and other compensation for the performance of permanent technical and administrative services, may not exceed 25.0% of profits of each fiscal year. This maximum amount shall be limited to 5.0% when no dividends are distributed to the shareholders and shall be increased proportionately to the dividend distribution until the 25.0% limit is reached when all profits are distributed.
The Corporations Law provides that aggregate director compensation may exceed the maximum percentage of computable profit in any one year when the company’s profits are non-existent or too small as to allow payment of a reasonable compensation to board members which have been engaged in technical or administrative services to the company, provided that such proposal is described in the notice of the agenda for the ordinary shareholders’ meeting and is approved by a majority of shareholders present at such shareholders’ meeting.
In addition to the above, our bylaws establish that best practices and national and international market standards regarding directors with similar duties and responsibilities shall be considered when determining the compensation of board members.
Syndics
Our bylaws, in accordance with Argentine law, provide for the maintenance of a supervisory committee whose members are three permanent syndics and three alternate syndics. Syndics are elected for a one-year term and may be re-elected. Alternate syndics replace permanent syndics in case of absence. For the appointment of syndics, each of our class A shares and class B shares has only one vote. Fees for syndics are established by the shareholders at the annual ordinary shareholders’ meeting. Their function is to oversee the management of the company, to control the legality of the actions of the board of directors, to attend all board of directors’ meetings, to attend all shareholders’ meetings, to prepare reports for the shareholders on the financial statements with their opinion, and to provide information regarding the company to shareholders that represent at least 2% of the capital stock. Syndics’ liabilities are joint and several and unlimited for the non-fulfillment of their duties. They are also jointly and severally liable, together with the members of the board of directors, if the proper fulfillment of their duties as syndics would have avoided the damage or the losses caused by the members of the board of directors.
Shareholders’ Meetings
Shareholders’ meetings may be ordinary meetings or extraordinary meetings. An annual ordinary shareholders’ meeting is required to be held in each fiscal year to consider the matters outlined in Article 234 of the Corporations Law, including, among others:
- approval of the financial statements and general performance of the management for the preceding fiscal year;
- appointment and remuneration of directors and members of the supervisory committee;
- allocation of profits; and
- any other matter the board of directors decides to submit to the shareholders’ meeting concerning the Company’s business administration. Matters which may be discussed at these or other ordinary meetings include resolutions regarding the responsibility of directors and members of the supervisory committee, as well as capital increases and the issuance of notes.
Extraordinary shareholders’ meetings may be called at any time to discuss matters beyond the competence of the ordinary meeting, including but not limited to amendments to the bylaws, matters related to the liquidation of a company, limitation of the shareholders’ preemptive rights to subscribe new shares, issuance of bonds and debentures, transformation of the corporate form, a merger into another company and spin-offs, early winding-up, change of the company’s domicile to outside Argentina, total or partial repayment of capital for losses, and a substantial change in the corporate purpose set forth in the bylaws.
Shareholders’ meetings may be convened by the board of directors or by the syndics. A shareholder or group of shareholders holding at least 5.0% in the aggregate of our capital stock may request the board of directors or the syndics to convene a general shareholders’ meeting to discuss the matters indicated by the shareholder.
Once a meeting has been convened with an agenda, the agenda limits the matters to be decided upon at such meeting and no other matters may be decided upon.
Additionally, our bylaws provide that any shareholder holding at least 5% in aggregate of our capital stock may present, in writing, to the Board of Directors, before February 28 of each year, proposals of items to be included in the agenda at the annual general ordinary shareholders’ meeting. The Board of Directors is not obligated to include such items in the agenda.
Class B shares represented by ADSs will be voted or caused to be voted by the Depositary in accordance with instructions of the holders of such ADSs. In the event instructions are not received from the holder, the Depositary shall give a discretionary proxy for the shares represented by such ADSs to a person designated by us.
Notice of each shareholders’ meeting must be published in the Official Gazette, and in a widely circulated newspaper in the country’s territory, at least twenty days prior to the meeting but not more than forty-five days prior to the date on which the meeting is to be held. The board of directors will determine the appropriate publication of notices outside Argentina in accordance with the requirements of the jurisdictions and exchanges on which our shares are traded. In order to attend a meeting and to be listed on the meeting registry, shareholders must submit evidence of their book-entry share account held at Caja de Valores at least three business days prior to the scheduled meeting date without counting the meeting day.
The quorum for ordinary meetings consists of a majority of stock entitled to vote, and resolutions may be adopted by the affirmative vote of 50% plus one vote (an “absolute majority”) of the votes present whether in person or participating via electronic means of communication. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting may be convened to be held one hour later on the same day as the first meeting had been called for, provided that it is an ordinary shareholders’ meeting, or within 30 days of the date for which the first ordinary meeting was called.
The quorum for extraordinary shareholders’ meetings consists of 60% of stock entitled to vote, and resolutions may be adopted by an absolute majority of the votes present. If no quorum is present at the first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall constitute a quorum. Resolutions are to be adopted by an absolute majority of the votes present. The second meeting has to be convened to be held within 30 days of the date for which the first extraordinary meeting was called, and the notice must be published for three days, at least eight days before the date of the second meeting. Some special matters require a favorable vote of the majority of all the stock holding voting rights, the class A shares being granted the right to only one vote each. The special matters are described in “—Voting Rights” above.
Dividends
Dividends may be lawfully paid and declared only out of our retained earnings representing the profit realized and liquid on our operations and investments reflected in our annual financial statements, as approved at our annual general shareholders’ meeting. No profits may be distributed until prior losses are covered. Dividends paid on our class A shares and class B shares will equal one another on a per-share basis.
As required by the Corporations Law, 5% of our net income is allocated to a legal reserve until the reserve equals 20% of our outstanding capital. Dividends may not be paid if the legal reserve has been impaired. The legal reserve is not available for distribution to shareholders.
Our Board of Directors submits our financial statements for the previous fiscal year, together with reports prepared by our supervisory committee, to our shareholders for approval at the general ordinary shareholders’ meeting. The shareholders, upon approving the financial statements, determine the allocation of our net income.
Our Board of Directors is allowed by law and by our bylaws to decide to pay anticipated dividends on the basis of a balance sheet especially prepared for purposes of paying such dividends.
Under BYMA regulations, cash dividends must be paid to shareholders within 10 days of the shareholders’ meeting approving said dividend. Payment of dividends in shares requires authorization from the CNV, the BYMA and the Córdoba Stock Exchange, whose authorizations must be requested within 10 business days after the shareholders’ meeting approving the dividend. We must make a distribution of the shares available to shareholders not later than three months after receiving authorization to do so from the CNV.
Shareholders may no longer claim the payment of dividends from us after three years have elapsed from the date on which the relevant dividends were made available to such shareholders.
Capital Increases and Reductions
We may increase our capital upon resolution of the general ordinary shareholders’ meeting. All capital increases must be reported to the CNV, published in the Official Gazette and registered with the Public Registry of Commerce. Capital reductions may be voluntary or mandatory. A voluntary reduction of capital must be approved by an extraordinary shareholders’ meeting after the corresponding authorization by the BYMA, the Córdoba Stock Exchange and the CNV and may take place only after notice of such reduction has been published and creditors have been given an opportunity to obtain payment or guarantees for their claims or attachment. A reduction of capital is mandatory when losses have exceeded reserves and more than 50% of the share capital of the company.
Preemptive Rights
Under Argentine law, it is mandatory that a shareholder of ordinary shares of any given class have preemptive rights, proportional to the number of shares he or she owns, to subscribe for shares of capital stock of the same class or of any other class if the new subscription offer does not include all classes of shares. Shareholders may only decide to suspend or limit preemptive rights by supermajority at an extraordinary shareholders’ meeting and only in exceptional cases. Shareholders may waive their preemptive rights only on a case-by-case basis.
In the event of an increase in our capital, holders of class A shares and class B shares have a preemptive right to subscribe for any issue of class B shares in an amount sufficient to maintain the proportion of capital then held by them. Holders of class A shares are entitled to subscribe for class B shares because no further class A shares carrying five votes each are allowed to be issued in the future. Under Argentine law, companies are prohibited from issuing stock with multiple voting rights after they have been authorized to make a public offering of securities.
Preemptive rights are exercisable following the last publication of the notification to shareholders of the opportunity to exercise preemptive rights in the Official Gazette and an Argentine newspaper of wide circulation for a period of 30 days, provided that such period may be reduced to no less than 10 days if so approved by an extraordinary shareholders’ meeting.
Shareholders who have exercised their preemptive rights and indicated their intention to exercise additional preemptive rights are entitled to additional preemptive rights (“accretion rights”), on a pro rata basis, with respect to any unsubscribed shares, in accordance with the terms of the Corporations Law. Class B shares not subscribed for by shareholders through the exercise of their preemptive or accretion rights may be offered to third parties.
Holders of ADSs may be restricted in their ability to exercise preemptive rights if a registration statement relating to such rights has not been filed or is not effective or if an exemption from registration is not available.
Appraisal Rights
Whenever our shareholders approve:
- a merger or spin-off in which we are not the surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock exchange,
- a transformation in our legal corporate form,
- a fundamental change in our corporate purpose,
- a change of our domicile to outside Argentina,
- a voluntary termination of our public offering or listing authorization,
- our continuation following a delisting or a mandatory cancellation of our public offering or listing authorization, or
- a total or partial recapitalization of our statutory capital following a loss,
any shareholder that voted against such action or did not attend the relevant meeting may exercise its right to have its shares canceled in exchange for the book value of its shares, determined on the basis of our latest balance sheet prepared in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within the periods set forth below.
There is, however, doubt as to whether holders of ADSs, will be able to exercise appraisal rights with respect to class B shares represented by ADSs.
Appraisal rights must be exercised within five days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolutions, or within 15 days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of a merger or spin-off involving an entity authorized to make a public offering of its shares, appraisal rights may not be exercised if the shares to be received as a result of such transaction are listed on any stock exchange. Appraisal rights are extinguished if the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 75 days of the meeting at which the resolution was adopted.
Payment of the appraisal rights must be made within one year from the date of the shareholders’ meeting at which the resolution was adopted, except if the resolution was to delist our capital stock, in which case the payment period is reduced to 60 days from the date of the related resolution.
Preferred Stock
According to the Corporations Law and our bylaws, an ordinary shareholders’ meeting may approve the issuance of preferred stock. Such preferred stock may have a fixed dividend, cumulative or not cumulative, with or without additional participation in our profits, as decided by shareholders at a shareholders’ meeting when determining the conditions of the issuance. They may also have other preferences, such as a preference in the event of our liquidation.
The holders of preferred stock shall not be entitled to voting rights. Notwithstanding the foregoing, in the event that no dividends are paid to such holders for their preferred stock, and for as long as such dividends are not paid, the holders of preferred stock shall be entitled to voting rights. Holders of preferred stock are also entitled to vote on certain special matters, such as the transformation of the corporate form, a merger into another company and
spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), early winding-up, a change of our domicile to outside Argentina, total or partial repayment of capital for losses and a substantial change in the corporate purpose set forth in our bylaws or in the event our preferred stock is traded on stock exchanges and such trading is suspended or terminated.
Conflicts of Interest
As a protection to minority shareholders, under the Corporations Law, a shareholder is required to abstain from voting on any resolution in which its direct or indirect interests conflict with that of or are different than ours. In the event such shareholder votes on such resolution, and such resolution would not have been approved without such shareholders’ vote, the resolution may be declared void by a court and such shareholder may be liable for damages to the company as well as to any third party, including other shareholders.
Redemption or Repurchase
According to the Capital Markets Law, a stock corporation may acquire the shares issued by it, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and those set forth by the CNV. The above-mentioned conditions are: (a) the shares to be acquired shall be fully paid up; (b) there shall be a resolution signed by the board of directors to such effect; (c) the acquisition shall be made out of net profits or free or voluntary reserves; and (d) the total amount of shares acquired by the company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower percentage determined by the CNV. The shares acquired by the company in excess of such limit shall be disposed of within the term of 90 days after the date of the acquisition originating such excess.
The shares acquired by the company shall be disposed of by the company within the maximum term of three years counted as from the date of acquisition thereof. Upon disposing of the shares, the company shall make a preemptive offer thereof. Such an offer will not be obligatory if the shares are used in connection with a compensation plan or program for the company’s employees or if the shares are distributed among all shareholders pro rata their shareholdings. If shareholders do not exercise, in whole or in part, their preemptive rights, the sale shall be made at a stock exchange.
Liquidation
Upon our liquidation, one or more liquidators may be appointed to wind up our affairs. If no such appointment is made, our Board of Directors will act as liquidator. All outstanding common shares will be entitled to participate equally in any distribution upon liquidation. In the event of liquidation, in Argentina and in any other country, our assets shall first be applied to satisfy our debts and liabilities.
Other Provisions
Our bylaws are governed by Argentine law and the ownership of any kind of our shares represents acceptance of our bylaws and submission to the exclusive jurisdiction of the ordinary commercial courts of Buenos Aires for any claim or dispute related to us, our shareholders, directors and members of the supervisory committee.
C. Material Contracts
Bonds
During the 2016 fiscal year, Banco Galicia issued subordinated Class II notes due 2026 in an aggregate principal amount of US$250 million. The proceeds of this issuance were used to redeem the Bank’s outstanding subordinated notes due 2019. During the 2017 fiscal year Banco Galicia issued Class III notes in aggregate principal amount of Ps.150 million due 2020. Class IV notes in an aggregate principal amount of Ps.2,000 million due 2020. During the 2018 fiscal year, Banco Galicia issued Class V Series I notes due 2020 and Series II notes due 2020 in an aggregate principal amount of Ps.4,209 million and Ps.2,032 million, respectively.
The pricing supplements for the issuances described above set forth certain covenants Banco Galicia must comply with for the benefit of the holders of such notes, which include, among others, restrictions on mergers, acquisitions or dispositions (subject to certain exceptions) and restrictions on the incurrence of additional debt.
Loans
In May 2016, the IFC granted Banco Galicia a credit line in an amount of up to US$130 million. As of May 2018, Banco Galicia has drawn all of the commited amount and the loan was amortized for US$37 million.
On March 23, 2018, Banco Galicia announced the issuance of a green bond to raise US$100 million in order to expand its loan program for environmental efficiency projects. This is the first green bond issued by a private financial institution in Argentina, marking Banco Galicia’s commitment to finance projects with a positive impact on the environment. The bonds were underwritten on June 21, 2018 by the IFC. To date, loans for US$53 million were granted.
D. Exchange Controls
For a description of the exchange controls that would affect us or the holders of our securities, see Item 4. “Information on the Company—Government Regulation—Foreign Exchange Market”.
E. Taxation
The following is a summary of the principal Argentine and U.S. federal income tax consequences arising from the acquisition, ownership and disposition of our class B shares and ADSs. This summary is based on Argentine and U.S. federal tax laws, as well as the regulations in effect as of the date of this annual report. Further, this summary is subject to any subsequent changes in laws and regulations that may come into effect after this date. Any change could apply retroactively and could affect the continued validity of this summary. This summary does not constitute legal advice or a legal opinion with respect to the transactions that the holders of our class B shares or ADSs may enter into. This summary is only a brief description of certain (but not all) aspects of the Argentine and U.S. federal income tax systems, as they relate to the acquisition, ownership and disposition of our class B shares and ADSs. In addition, although the Company believes that the following summary is a reasonable interpretation of the current taxation rules and regulations, Grupo Galicia cannot assure that the applicable authorities or tribunals will agree with all, or any of the tax consequences outlined below. Currently, there is no tax treaty between the United States and Argentina.
Argentine Taxes
Law No.26,893, enacted on September 12, 2013 and published in the Official Gazette on September 23, 2013, introduced changes to Income Tax Law No.20,628, including the derogation of Section 78 of Decree No.2284/1991; which provides that foreign holders with no permanent establishment in Argentina are exempt from paying income tax on the capital gains arising from the sale or other disposition of shares or ADSs.
Decree No.2334/2013 has regulated Law No.26,893. This decree provides that changes introduced by Law No.26,893 are effective from the date of publication of such law in the Official Gazette and apply to taxable events carried out from such date onwards.
Law No.27,430 enacted on December 27, 2017 and published in the Official Gazette on December 29, 2017, and Law No. 27,541 published in the Official Gazette on December 23,2019 introduced several changes to Income Tax Law No.20,628. The principal change resulting from such law is a corporate income tax rate reduction in two phases. For fiscal years beginning on or after January 1, 2018 until December 31, 2021, the government has reduced the corporate income tax rate from 35% to 30%. After December 31, 2021, the corporate tax rate will be further reduced to 25%.
This reform includes additional changes, such as the confirmation that ADRs and ADSs generate Argentine-sourced income. Non- residents, however, will be exempted from the current 15% capital gains tax on the sale of ADRs or ADSs if they reside in a jurisdiction having an exchange of information agreement with Argentina or if these invested funds come from a cooperating jurisdiction.
Taxation of Dividends
As from the effectiveness of Law No. 27,430 and Law No. 27,541, on December 27, 2017 and December 23, 2019 dividends and distributions (other than stock dividends) made by local entities to individuals, undivided estates, and foreign entities are subject to a withholding tax at a rate of 7% (while the corporate income tax is 30%) and at a rate of 13% beginning on January 1, 2022. Thus, the combined rate on dividend/profit distribution would remain around the current 35% rate, as Argentina has not levied a withholding tax on dividends or branch profits, since it eliminated the same in 2016.
Decree No.1170/2018 provides for further guidance on Law No.27,430. This decree provides that dividend payments on ADSs or ordinary shares, whether in cash, property, or stock, would be subject to Argentine withholding tax and the exemption referred to in the last paragraph of “Argentine Taxes” above shall not apply.
Equalization Tax
There is a specific rule under which a 35% tax (“equalization tax”) will be imposed on certain dividends approved by shareholders. The equalization tax will be applied only to the extent that distributions of dividends exceed the taxable income of the company increased by non-taxable dividends received by the distributing company in prior years and reduced by Argentine income tax paid by the distributing company.
The equalization tax will be imposed as a withholding tax on the shareholder receiving the dividend. Dividend distributions made in kind (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends are not subject to Argentine taxation.
In addition, the foregoing tax reforms abolished the equalization tax for profits generated beginning January 1, 2018. Such equalization tax is a withholding tax levied at a rate of 35% on dividend distributions in excess of tax earnings that would remain applicable for the stock of non-distributed earnings and profits as of December 31, 2017.
Taxation of Capital Gains
In accordance with Law No.27,430 capital gains derived by non-resident individuals or foreign companies from the sale, exchange or other disposition of ADSs or class B shares are subject to the following regulations:
Non-residents continue to be exempted from tax on capital gains arising from the sale of shares in publicly-traded companies, if the shares are traded on the BASE. In accordance with Law No.27,541 the exemption will also apply if the securities are traded in stock or securities markets authorized by the (CNV). The benefits will be applied to foreign beneficiaries as long as they do not reside in non-cooperative jurisdictions or the invested funds do not come from a non-cooperative jurisdiction.
Transfer of Argentine securities that occurred after September 23, 2013 triggered taxation on a retroactive basis, as the suspension of the rule that called for the tax was lifted. The tax will not apply to sales made through stock exchanges if the tax had not been withheld.
Indirect transfers of Argentine assets (including shares) will be taxable, if (i) the value of the Argentine assets exceed 30% of the transaction’s overall value; and (ii) the equity interest sold (in the foreign entity) exceeds 10%. The tax will also be due if any of these thresholds were met during the 12 month period prior to the sale. The indirect transfer of Argentine assets will only be subject to tax if these assets are acquired after January 1, 2018. Transactions involving indirect transfers of Argentine assets within the same economic group would also not trigger taxation, provided the requirements set by regulations have been met. Decree No.862/2019 and General Resolution No.4227/2018, provide that the seller, and not the buyer, is the party responsible for withholding the tax. The regulation has established a new mechanism regulating how non-resident sellers should pay the tax on the capital gain for transactions that have taken place on or after January 1, 2018. In summary, the non-resident seller should pay the tax directly through an international wire transfer unless there is a local withholding agent (i.e., local buyer or local custodial institution) involved in the payment.
Transfer Taxes: no Argentine transfer taxes are applicable on the sale or transfer of ADSs or class B shares.
Personal Assets Tax
Individuals domiciled and undivided estates located in Argentina or abroad will be subject to an annual tax in respect of assets located in Argentina and abroad. Applicable wealth tax rates and minimum non-taxable asset values for the general taxpayer regime are replaced with effect as of fiscal year 2019 by Law No.27,480 and Law No. 27.541. The following is the new scheme:
Fiscal year | Tax rate | Exempt Minimum | ||
2019 onwards | * | Ps.2,000,000 |
*Taxe Rate (In pesos except percentages) |
| |||||||||||||||||
Total Value of Assets |
|
| Flat Tax |
|
| More % |
|
| Taxation over the excess of the amount |
| ||||||||
Over Ps. |
|
| Up to the amount |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| — |
|
|
| 3,000,000 |
|
|
| — |
|
|
| 0.25 |
|
|
| — |
|
| 3,000,001 |
|
|
| 6,500,000 |
|
|
| 15,000 |
|
|
| 0.75 |
|
|
| 3,000,000 |
|
| 6,500,001 |
|
|
| 18,000,000 |
|
|
| 41,250 |
|
|
| 1.00 |
|
|
| 6,500,000 |
|
| 18,000,000 |
|
| Onward |
|
|
| 156,250 |
|
|
| 1.25 |
|
|
| 18,000,000 |
| |
Individuals domiciled abroad will pay the tax only in respect of the assets they hold in Argentina. In the case of individuals domiciled abroad, the tax will be paid by the individuals or entities domiciled in Argentina which, as of December 31 of each year, hold the joint ownership, possession, use, enjoyment, deposit, safekeeping, custody, administration or tenure of the assets located in Argentina and subject to the tax belonging to the individuals domiciled abroad. When the direct ownership of notes, government securities and certain other investments, except shares issued by companies ruled by the Corporations Law, are part of companies domiciled abroad in countries that do not enforce registration systems for private securities (with the exception of insurance companies, open-end investment funds, pension funds or banks and financial entities with head offices in countries that have adopted the international banking supervision standards laid down by the Basel Committee on Banking Supervision) or that pursuant to their bylaws, charter, documents or the applicable regulatory framework, have as their principal activity investing outside of the jurisdiction of their organization or domicile, or are generally restricted from doing business in their country of incorporation, it will be assumed, without admission of any proof to the contrary, that these assets belong ultimately to individuals and therefore the system for paying the tax for such individuals domiciled abroad applies to them.
An exception pursuant to a tax reform was published in the Official Gazette as Law No.25,585, which went into effect on December 31, 2002. This tax reform introduced a mechanism to collect the personal assets tax on shares issued by companies ruled by the Corporations Law, which ownership belongs to individuals domiciled in Argentina or abroad, and companies or entities domiciled abroad. In the case of companies or entities domiciled abroad, it will be assumed, without admitting any proof to the contrary, that these shares ultimately belong to individuals domiciled abroad.
The tax was assessed and paid by those companies ruled by the Corporations Law at the rate of 0.5% on the value of the shares or equity interest. The valuation of the shares, whether listed or not, must be made according to their proportional equity value. These companies may eventually seek reimbursement from the direct owner of the shares, in respect of any amounts paid to the Argentine tax authorities as a personal asset tax. Grupo Financiero Galicia has sought reimbursement for the amount paid corresponding to December 31, 2002. The Board of Directors submitted the decision on how to proceed with respect to fiscal year 2003 to the annual shareholders’ meeting held on April 22, 2004. At that meeting, our shareholders voted to suspend all claims on our shareholders for any amount unpaid for fiscal year 2002 and to have the Company absorb the amounts due for fiscal year 2003 onward, when not withheld from dividends.
Pursuant to Law No.27,260, Argentine companies that have properly fulfilled their tax obligations during the two prior fiscal years to the 2016 fiscal year, and which comply with certain other requirements, may qualify for an exemption from personal asset taxes for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017. Grupo Financiero Galicia filed this request. Notwithstanding, we cannot assure that in the future, Grupo Financiero Galicia can fulfill these requirements and maintain such exemption.
Other Taxes
There are no Argentine federal inheritance, succession or gift taxes applicable to the ownership, transfer or disposition of ADSs or class B shares. There are no Argentine stamps, issue, registration or similar taxes or duties payable by holders of ADSs or class B shares.
Tax measures related to Covid-19
Tax, Trade & Regulatory
General Tax Measures
On March 19, 2020, the tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the AFIP. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays days between March 19 and April 26 for procedural purposes.
Indirect Tax (VAT, Customs)
On March 19, 2020 the AFIP approved a reduction in the tax rate from 0.6% to 0.25%. Additionally, AFIP also approved a reduction from 1.2% to 0.5% for tax financial transactions on deposits and withdrawals from Argentine bank accounts for employers in the health care industry (i.e., diagnosis services, health insurance and pre-paid medicine companies and hospitals, among others) during a 90-day period.
Other taxes
On March 23, 2020, the deadline for e-filings broadly was expanded until June 30,2020. The tax authorities established that the period between March 18, 2020 and March 31, 2020 will not be considered in order to meet administrative obligations with the Federal Tax Administration. This measure does not modify or postpone any due date for the tax determination or payments.
On April 2, 2020, aligned with the lockdown extension until Monday April 27, the tax authorities defined as administrative holidays the days between March 19 and April 26 for procedural purposes.
Tax reporting
On March 31, 2020, through General Resolution 4689/2020, transfer pricing filings (including complementary annual study) corresponding to fiscal years ended from December 31, 2018 to September 30, 2019, both inclusive, was postponed from April 20-24 to May 2020 18-22 (the exact due date depending on the Tax ID's last digit).
Workforce: Individual and Employment Taxes
The due date for the voluntary repatriation of funds (in order not to be subject to an incremental tax rate on assets located abroad) was postponed from March 31 to April 30, 2020. Also, the due date for the payment established for those not adhering to the repatriation of funds was postponed from April 1 to May 6, 2020.
On March 25, 2020, the Labor, Employment & Social Security Ministry issued Resolution No. 219, which established that employees who could not work from home during the lockdown would be relieved from paying the employer and employee contributions due to the Integrated Social Security System. The Resolution also established that employers of new hires will benefit from a 95% reduction on the contributions they have to make to the Integrated Social Security System.
On March 31, 2020, the Labor, Employment & Social Security Ministry amended Resolution No. 219, and issued Resolution No. 279, removing any relief provided from social security contributions for those employees who cannot perform their duties from their homes during the lockdown.
Deposit and Withdrawal of Class B Shares in Exchange for ADSs
No Argentine tax is imposed on the deposit or withdrawal of class B shares in exchange for ADSs.
United States Federal Income Taxes
The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of class B shares and ADSs, as their terms are set forth in the documents or the forms thereof, relating to such securities as in existence on the date hereof, but it does not purport to address all the tax considerations that may be relevant to a decision to purchase, own or dispose of class B shares or ADSs. This summary assumes that the class B shares or ADSs will be held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), and does not address tax consequences to all categories of investors, some of which (such as dealers or traders in securities or currencies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt entities, banks, insurance companies, persons that received class B shares or ADSs as compensation for the performance of services, persons owning (or deemed to own for U.S. federal income tax purposes) 10% or more (by voting power or value) of our shares, U.S. Holders (as defined below) whose functional currency is not the Dollar and persons that hold the class B shares or ADSs as part of a position in a “straddle” or as part of a “hedging” or “conversion” transaction for U.S. federal income tax purposes) may be subject to special tax rules. Moreover, this summary does not address the U.S. federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of class B shares or ADSs.
This summary (i) is based on the Code, existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case, as in effect and available on the date hereof, and (ii) is based in part on representations of the Depository and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of class B shares or ADSs that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if such trust validly elects to be treated as a United States person for U.S. federal income tax purposes or if (a) a United States court can exercise primary supervision over its administration and (b) one or more United States persons have the authority to control all of the substantial decisions of such trust. A “Non-U.S. Holder” is a beneficial owner of class B shares or ADSs that is neither a U.S. Holder nor a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds class B shares or ADSs, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
Each prospective purchaser should consult its own tax advisor with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of class B shares or ADSs.
Ownership of ADSs in General
In general, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the class B shares represented by such ADSs. For purposes of the discussion below, we assume that intermediaries in the chain of ownership between the holder of an ADS and Grupo Financiero Galicia are acting consistently with the claiming of U.S. foreign tax credits by U.S. Holders.
Taxation of Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, for U.S. federal income tax purposes, the gross amount of distributions by Grupo Financiero Galicia of cash or property (other than certain distributions, if any, of class B shares or ADSs distributed pro rata to all shareholders of Grupo Financiero Galicia, including holders of ADSs) made with respect to the class B shares or ADSs before reduction for any Argentine taxes withheld therefrom, will constitute dividends to the extent that such distributions are paid out of Grupo Financiero Galicia’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, and will be included in the gross income of a U.S. Holder as dividend income. Subject to the discussion below under “Passive Foreign Investment Company Considerations”, non-corporate U.S. Holders generally will be taxed on such distributions on ADSs (or class B shares that are readily tradable on an established securities market in the United States at the time of such distribution) at the lower rates applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year). Non-corporate U.S. Holders that (i) do not meet a minimum holding period requirement with respect to such ADSs (or class B shares), (ii) elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4)(B) of the Code or (iii) receive dividends with respect to which they are obligated to make related payments for positions in substantially similar or related property will not be eligible for the reduced rates of taxation. In addition, dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Code.
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, if distributions with respect to the class B shares or ADSs exceed Grupo Financiero Galicia’s current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, the excess will be treated first as a tax-free return of capital to the extent of such U.S. Holder’s adjusted tax basis in the class B shares or ADSs. Any amount in excess of such adjusted basis will be treated as capital gain from the sale or exchange of such class B shares or ADSs. Grupo Financiero Galicia does not maintain calculations of its earnings and profits under U.S. federal income tax principles.
Dividends paid in Pesos will be included in the gross income of a U.S. Holder in an amount equal to the Dollar value of the Pesos on the date of receipt, which, in the case of ADSs, is the date they are received by the Depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. Any gains or losses resulting from the conversion of Pesos between the time of the receipt of dividends paid in Pesos and the time the Pesos are converted into Dollars will be treated as ordinary income or loss, as the case may be, of a U.S. Holder. Dividends received by a U.S. Holder with respect to the class B shares or ADSs will be treated as foreign source income, which may be relevant in calculating such holder’s foreign tax credit limitation. Subject to certain conditions and limitations, Argentine tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific categories of income. For this purpose, dividend income with respect to class B shares or ADSs should generally constitute “passive category income”, or in the case of certain U.S. Holders, “general category income”. The rules governing the foreign tax credit are complex. Prospective holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Subject to the discussion below under “Backup Withholding and Information Reporting”, a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received on class B shares or ADSs, unless such income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States.
Taxation of Capital Gains
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” U.S. Holders will recognize capital gain or loss for U.S. federal income tax purposes upon a sale or exchange of class B shares or ADSs in an amount equal to the difference between such U.S. Holder’s adjusted tax basis in the class B shares or ADSs and the amount realized on their disposition. In the case of a non-corporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to such gain will be lower than the maximum marginal U.S. federal income tax rate for ordinary income (other than certain dividends) if the U.S. Holder’s holding period in the class B shares or ADSs exceeds one year at the time of the sale or exchange. Gain or loss, if any, recognized by a U.S. Holder generally will be treated as United States source income or loss for U.S. foreign tax credit purposes. Consequently, a U.S. Holder may not be able to use the foreign tax credit arising from any Argentine tax imposed on the disposition of class B shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Certain limitations apply to the deductibility of capital losses for U.S. federal income tax purposes.
A U.S. Holder’s initial tax basis in the class B shares or ADSs is the Dollar value of the Pesos denominated purchase price determined on the date of purchase. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the Dollar value of the cost of such class B shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
With respect to the sale or exchange of class B shares or ADSs, the amount realized generally will be the Dollar value of the payment received, before reduction for any Argentine taxes withheld therefrom, determined on (i) the date of receipt of payment in the case of a cash basis U.S. Holder and (ii) the date of disposition in the case of an accrual basis U.S. Holder. If the class B shares or ADSs are treated as traded on an “established securities market”, a cash basis taxpayer (or, if it elects, an accrual basis taxpayer) will determine the Dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
Subject to the discussion below under “Backup Withholding and Information Reporting,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale or exchange of class B shares or ADSs unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale or exchange and certain other conditions are met.
Passive Foreign Investment Company Considerations
A non-U.S. corporation will be classified as a “passive foreign investment company”, or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (1) at least 75 percent of its gross income is “passive income” or (2) at least 50 percent of the average value of its gross assets is attributable to assets that produce “passive income” or is held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions, other than certain income derived in the active conduct of a banking business.
The application of the PFIC rules is unclear both generally and specifically with respect to banks. The United States Internal Revenue Service (“IRS”) has issued a notice and certain proposed Treasury Regulations that exclude from passive income any income derived in the active conduct of a banking business by a qualifying foreign
bank (the “Active Bank Exception”). However, the IRS notice and proposed Treasury Regulations are inconsistent in certain respects. Because final Treasury Regulations have not been issued, there can be no assurance that Grupo Financiero Galicia or its subsidiaries will satisfy the Active Bank Exception for any given taxable year.
Based on certain estimates of its gross income and gross assets (which estimates are inherently imprecise), the nature of its business, and reliance on the Active Bank Exception, Grupo Financiero Galicia believes that it should not be classified as a PFIC for the taxable year ended December 31, 2019. Grupo Financiero Galicia’s status in future years will depend on its assets and activities in those years. Grupo Financiero Galicia has no reason to believe that its assets or activities will change in a manner that would cause it to be classified as a PFIC, but there can be no assurance that Grupo Financiero Galicia will not be considered a PFIC for any taxable year. If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, the class B shares or ADSs.
If Grupo Financiero Galicia were a PFIC, a U.S. Holder of class B shares or ADSs could make a variety of elections that may alleviate certain of the adverse tax consequences referred to above, and one of these elections may be made retroactively. However, it is expected that the conditions necessary for making certain of such elections will not apply in the case of the class B shares or ADSs. U.S. Holders should consult their own tax advisors regarding the tax consequences that would arise if Grupo Financiero Galicia were treated as a PFIC.
Reporting Requirements
Non-corporate U.S. Holders, including individuals, that hold “specified foreign financial assets”, as defined in the Treasury Regulations (which may include class B shares or ADSs), other than in an account at a U.S. financial institution or the U.S. branch of a non-U.S. financial institution, are required to report certain information relating to such assets. U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this and any other reporting requirements on their ownership and disposition of class B shares or ADSs. Failure to comply with applicable reporting requirements could result in the imposition of substantial penalties.
Backup Withholding and Information Reporting
United States backup withholding tax and information reporting requirements generally apply to certain payments to certain holders of stock.
Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, class B shares or ADSs made within the United States, or by a U.S. payor or U.S. middleman, to a holder of class B shares or ADSs (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification).
Payments of dividends on, or proceeds from the sale or redemption of, class B shares or ADSs within the United States, or by a U.S. payor or U.S. middleman, to a holder (other than an exempt recipient, such as a payee that is not a United States person and that provides an appropriate certification) will be subject to backup withholding if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is currently 24%.
FATCA
Beginning on the date that is two years after the date on which final Treasury Regulations are published defining the term “foreign passthru payment”, Grupo Financiero Galicia may be required, pursuant to Sections 1471 through 1474 of the Code, and the Treasury Regulations promulgated thereunder (often referred to as the “Foreign Account Tax Compliance Act” or “FATCA”) to withhold U.S. tax at a 30% rate on all or a portion of any distribution on class B shares or ADSs which is treated as a “foreign passthru payment”.
Assuming that distributions from Grupo Financiero Galicia constitute “foreign passthru payments” and that Grupo Financiero Galicia enters into an agreement with the IRS to report the information required by FATCA or, if
Argentina has entered in an intergovernmental agreement with the United States (an “IGA”),that Grupo Financiero Galicia complies with such IGA, then an investor considered to have a “U.S. account” maintained by Grupo Financiero Galicia may be required to provide the information described below or be subject to U.S. withholding tax on any distribution on class B shares or ADSs that is treated as a “foreign passthru payment”. Investors in class B shares or ADSs that are financial institutions, or financial institutions that receive payments on behalf of other persons, and that have not entered into an agreement with the IRS (or otherwise established an exemption from FATCA, including pursuant to an applicable IGA) would also be subject to this U.S. withholding tax.
FATCA is particularly complex and its application to Grupo Financiero Galicia is uncertain at this time. Each holder of class B shares or ADSs should consult its own tax advisor to obtain a more detailed explanation of FATCA and to learn how it might affect such holder under its particular circumstances.
Medicare Tax on Investment Income
Certain U.S. Holders that are individuals, estates or trusts are required to pay a 3.8% tax on the lesser of (i) the U.S. Holder’s “net investment income” for the taxable year and (ii) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. Net investment income includes, among other things, dividends and capital gains from the sale or other disposition of class B shares or ADSs.
THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CLASS B SHARES OR ADSs. PROSPECTIVE HOLDERS SHOULD CONSULT AN INDEPENDENT TAX ADVISOR CONCERNING THE TAX CONSEQUENCES IN THEIR PARTICULAR CIRCUMSTANCES.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and its exhibits, may be inspected and printed or copied for a fee at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These materials are also available on the SEC’s website at http://www.sec.gov. Material submitted by us can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1506.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
General
Market risks faced by us are the risks arising from the fluctuations in interest rates and in foreign exchange rates. Our market risk arises mainly from the operations of Banco Galicia in its capacity as a financial intermediary. Our subsidiaries and are also subject to market risk. However, the amount of these risks is not significant, and they are not discussed below. Policies regarding these risks are applied at the level of our operating subsidiaries.
In compliance with the Argentine Central Bank’s regulations, based on the best practices and international standards, Banco Galicia has a Risk Management Division responsible for identifying, monitoring and actively and integrally managing the different risks Banco Galicia and its subsidiaries are exposed to (credit, financial and operational risks). The aim of the Division is to guarantee Banco Galicia’s board of directors that it is fully aware of the risks Banco Galicia is exposed to. It also creates and proposes the policies and procedures necessary to mitigate and control such risks. The Risk Management Committee, made-up of six members of the board of directors of Banco Galicia, the Chief Executive Officer and the managers of the Risk Management Division, the Planning Division and Internal Audit, is the highest corporate body to which Banco Galicia’s board of directors delegates integral risk management and the executive responsibility to define and enforce risk management policies, procedures and controls. This Committee is also responsible for setting specific limits for the exposure to each risk and approving, when applicable, temporary excesses over such limits as well as being informed of each risk position and compliance with policies.
See Item 6. “Directors, Senior Management and Employees”—“Functions of the Board of Directors of Banco Galicia”. Liquidity management is discussed in Item 5 “Operating and Financial Review and Prospects”-.B.“Liquidity and Capital Resources”. Credit risk management is discussed in Item 4. “Information on the Company”—B.“Business Overview”- “Selected Statistical Information”—“Credit Review Process” and other sections under Item 4. “Information on the Company”—B.”Business Overview”- “Selected Statistical Information” describing Grupo Galicia’s financial instruments portfolio and financial instruments loss experience.
The following sections contain information on Banco Galicia’s sensitivity to interest-rate risk and exchange-rate risk that constitute forward looking statements that involve risks and uncertainties. Actual results could differ from those projected in the forward-looking statements.
Interest Rate Risk
A distinctive and natural characteristic of financial brokerage is the existence of interest-earning assets and interest-bearing liabilities with different maturities (or different rate repricing periods) and interest rates that can be fixed or variable. This situation leads to a gap or mismatch that arises from the balance sheet and measures the imbalance between fixed- and variable-rate assets and liabilities, and results in the so-called interest-rate risk or balance sheet structural risk. A commercial bank can face the interest rate risk on both sides of its balance sheet: with regard to the income generated by assets (loans and securities) and the expenses related to the interest-bearing liabilities (deposits and other sources of funds).
The policy currently in force defines this gap as the risk that the financial margin and the economic value of equity may vary as a consequence of fluctuations in market interest rates. The magnitude of such variation is associated with the sensitivity to interest rates of the structure of the Bank’s assets and liabilities.
Aimed at managing and limiting the sensitivity of Banco Galicia's economic value and results with respect to variations in the interest rate inherent to the structure of certain assets and liabilities, the following caps have been determined:
- Limit on the gross brokerage margin for the first year.
- Limit on the net present value of assets and liabilities.
Limit on the Gross Brokerage Margin for the First Year
The effect of interest rate fluctuations on the gross brokerage margin for the first year is calculated using the methodology known as scenario simulation. On a monthly basis, gross brokerage margin for the first year is simulated in a base scenario and in a “+400 bps” scenario for peso currency and “+200 bps” scenario for dollar scenario. In order to prepare each scenario, different criteria are assumed regarding the sensitivity to interest rates of assets and liabilities, depending on the historical performance observed of the different balance sheet items. Gross brokerage margin for the first year in the “+400 bps” and “+200 bps” scenario is compared to the gross brokerage margin for the first year in the “base” scenario. The resulting difference is related to the annualized accounting gross brokerage margin for the last calendar trailing quarter available, for Banco Galicia on a consolidated basis.
The limit on a potential loss was established at 10% of the gross brokerage margin for the first year, as defined above. At fiscal year-end, the negative difference between the gross brokerage margin for the first year corresponding to the “+400/200 bps” scenario and that corresponding to the “base” scenario accounted for -4.2% of the gross brokerage margin for the first year.
The tables below show as of December 31, 2019 in absolute and percentage terms, the change in Banco Galicia’s gross brokerage margin (“GBM”) of the first year, as compared to the gross brokerage margin of the “base” scenario corresponding to various interest-rate scenarios in which interest rates change 50, 100, 150 and 200 bps from those in the “base” scenario. Banco Galicia’s net portfolio is broken down into trading and non-trading. The trading net portfolio represents primarily securities issued by the Argentine Government.
Net Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 2,812 |
|
|
| 2.54 | % |
150 |
|
| 2,106 |
|
|
| 1.91 | % |
100 |
|
| 1,403 |
|
|
| 1.27 | % |
50 |
|
| 700 |
|
|
| 0.64 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (655 | ) |
|
| (0.60 | )% |
(100) |
|
| (1,310 | ) |
|
| (1.19 | )% |
(150) |
|
| (1,962 | ) |
|
| (1.78 | )% |
(200) |
|
| (2,512 | ) |
|
| (2.37 | )% |
(1) Net interest of the first year
Net Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 136 |
|
|
| 0.12 | % |
150 |
|
| 101 |
|
|
| 0.09 | % |
100 |
|
| 68 |
|
|
| 0.06 | % |
50 |
|
| 34 |
|
|
| 0.03 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (33 | ) |
|
| (0.03 | )% |
(100) |
|
| (67 | ) |
|
| (0.06 | )% |
(150) |
|
| (100 | ) |
|
| (0.09 | )% |
(200) |
|
| (133 | ) |
|
| (0.12 | )% |
(1) Net interest of the first year
Net Non -Trading Portfolio |
| |||||||
|
| Gross Brokerage Margin (1) |
| |||||
|
| December 31, 2019 |
| |||||
|
| (In millions of Pesos, except percentages) |
| |||||
Change in Interest Rates in bps |
| Variation |
|
| % Change in the GBM |
| ||
200 |
|
| 2,676 |
|
|
| 2.43 | % |
150 |
|
| 2,005 |
|
|
| 1.82 | % |
100 |
|
| 1,335 |
|
|
| 1.21 | % |
50 |
|
| 666 |
|
|
| 0.61 | % |
Static |
|
|
|
|
|
|
|
|
(50) |
|
| (622 | ) |
|
| (0.57 | )% |
(100) |
|
| (1,243 | ) |
|
| (1.13 | )% |
(150) |
|
| (1,862 | ) |
|
| (1.69 | )% |
(200) |
|
| (2,479 | ) |
|
| (2.25 | )% |
(1) Net interest of the first year
Limit on the Net Present Value of Assets and Liabilities
The net present value of assets and liabilities is also calculated on a monthly basis and taking into account the assets and liabilities of Banco Galicia’s consolidated balance sheet. The methodology used for calculating interest rate risk is based on the net present value of the underlying asset of liability.
The net present value of the consolidated assets and liabilities, as mentioned, is calculated for a “base” scenario in which the listed securities portfolio is discounted using interest rates obtained according to yield curves determined based on the market yields of different reference bonds denominated in Pesos, foreign currency and adjusted by CER/UVA. Yield curves for unlisted assets and liabilities are also created using market interest rates. The net present value of assets and liabilities is also obtained for a second scenario called “critical”, where through a significant number of statistical simulations of the interest rate track record, a “critical” scenario is obtained as a result of the interest rate risk exposure presented by the balance sheet structure.
The economic capital is obtained from the resulting difference between the “critical” scenario and the net present value of assets and liabilities of the “base” scenario, and considering a 99.5% degree of accuracy.
The limit on interest rate risk exposure, expressed as a difference between the net present value of assets and liabilities in the “base” scenario and the “critical” scenario cannot exceed 15% of the consolidated RPC. As of December 31, 2019, the “Value at Risk” was -8.65% of the RPC.
Foreign Exchange Rate Risk
Exchange-rate sensitivity is the relationship between the fluctuations of exchange rates and Banco Galicia’s net financial income resulting from the revaluation of Banco Galicia’s assets and liabilities denominated in foreign currency. The impact of variations in the exchange rate on Banco Galicia’s net financial income depends on whether Banco Galicia has a net asset foreign currency position (the amount by which foreign currency denominated assets exceed foreign currency denominated liabilities) or a net liability foreign currency position (the amount by which foreign currency denominated liabilities exceed foreign currency denominated assets). In the first case an increase/decrease in the exchange rate results in a gain/loss, respectively. In the second case, an increase/decrease results in a loss/gain, respectively. Banco Galicia has established limits for its consolidated foreign currency mismatches for the asset and liability positions of -9 % and + 30% of Banco Galicia’s RPC. At the end of the fiscal year, Banco Galicia’s net asset position in foreign currency represented 0.6%.
As of December 31, 2019, Banco Galicia had a net asset foreign currency position of Ps.4,929 million (US$82 million) after adjusting its on-balance sheet net asset position of Ps.4,906 million (US$82 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.23 million (US$0,4 million), recorded off-balance sheet.
As of December 31, 2018, Banco Galicia had a net liability foreign currency position of Ps.978 million (US$26 million) after adjusting its on-balance sheet net liability position of Ps.1,079 million (US$29 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.101 million (US$3 million), recorded off-balance sheet.
As of December 31, 2017, Banco Galicia had a net liability foreign currency position of Ps.549 million (US$29 million), after adjusting its on-balance sheet net asset position of Ps.2,003million (US$107 million) by net forward purchases of foreign currency without delivery of the underlying asset, for Ps.2,552 million (US$136 million), recorded off-balance sheet.
The table below show the effects of changes in the exchange rate of the Peso vis-à-vis the Dollar on the value of Banco Galicia’s foreign currency net asset position as of December 31, 2019. As of these dates, the breakdown of Banco Galicia’s foreign currency net asset position into trading and non-trading is not presented, as Banco Galicia’s foreign currency trading portfolio was not material
|
|
|
| Value of Foreign Currency Net Position |
| |||||||||
|
|
|
| As of December 31, |
| |||||||||
|
|
|
| 2019 |
| |||||||||
Percentage Change in the Value of the Peso Relative to the Dollar (1) |
|
| Amount |
|
| Absolute Variation |
|
| % Change |
| ||||
|
|
|
| (in millions of Pesos, except percentages) |
| |||||||||
40% |
|
|
| 6,896 |
|
|
| 1,967 |
|
|
| 40 |
| |
30% |
|
|
| 6,408 |
|
|
| 1,479 |
|
|
| 30 |
| |
20% |
|
|
| 5,915 |
|
|
| 986 |
|
|
| 20 |
| |
10% |
|
|
| 5,422 |
|
|
| 493 |
|
|
| 10 |
| |
Static (2) |
|
|
| 4,929 |
|
| - |
|
| - |
| |||
-10% |
|
|
| 4,436 |
|
|
| (493 | ) |
|
| (10 | ) | |
-20% |
|
|
| 3,943 |
|
|
| (986 | ) |
|
| (20 | ) | |
-30% |
|
|
| 3,450 |
|
|
| (1,479 | ) |
|
| (30 | ) | |
-40% |
|
|
| 2,962 |
|
|
| (1,967 | ) |
|
| (40 | ) | |
(1) Devaluation / (Revaluation).
(2) Adjusted to reflect forward purchases and sales of foreign currency without delivery of the underlying asset, registered in memorandum accounts.
Currency Mismatches
The funding and the use of funds in loans and/or investments can be carried out in assets and liabilities denominated in different currencies. As such, there is the potential for a currency mismatch between liabilities and the use thereof on assets, generating a risk. Currency risk is defined as the risk of incurring equity losses as a result of variations in the foreign currency exchange rates in which assets and liabilities are denominated.
The management of the Bank’s currency risk mismatch involves the monitoring of foreign currency-denominated assets and liabilities that may change in the short- and or mid-term. One of the available market instruments for the management of currency mismatches of assets and liabilities are “currency futures” transactions, which are traded on the MAE (MAE – OCT) and Mercado a Término de Rosario (ROFEX).
The policy framework currently in force establishes limits in terms of maximum net asset positions (assets denominated in a currency which are higher than the liabilities denominated in such currency) and net liability positions (assets denominated in a currency which are lower than the liabilities denominated in such currency) for mismatches in foreign currency, as a proportion of the Bank’s computable regulatory capital (“RPC”), on a consolidated basis.
The table below shows the composition of the Grupo Financiero Galicia’s Shareholders’ Equity as of December 31, 2019, by currency and type of adjustment:
|
| December 31, 2019 |
| |||||||||
|
| Assets |
|
| Liabilities |
|
| Gap |
| |||
|
| (in millions of Pesos) |
| |||||||||
Financial Assets and Liabilities |
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by UVA |
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted |
|
| 404,602 |
|
|
| 338,247 |
|
|
| 66,355 |
|
Foreign Currency (1) |
|
| 205,397 |
|
|
| 196,617 |
|
|
| 8,780 |
|
Other Assets and Liabilities |
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Gap |
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
Adjusted for Forward Transactions Recorded in Memo Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets and Liabilities |
|
| 638,334 |
|
|
| 536,814 |
|
|
| 101,520 |
|
Pesos - Adjusted by the UVA |
|
| 28,335 |
|
|
| 1,950 |
|
|
| 26,385 |
|
Pesos - Unadjusted, Including Shareholders’ Equity (2) |
|
| 378,580 |
|
|
| 312,248 |
|
|
| 66,332 |
|
Foreign Currency (1) (2) |
|
| 231,419 |
|
|
| 222,616 |
|
|
| 8,803 |
|
Other Assets and Liabilities |
|
| 47,185 |
|
|
| 31,871 |
|
|
| 15,314 |
|
Total Adjusted Gap |
|
| 685,519 |
|
|
| 568,685 |
|
|
| 116,834 |
|
(1) In Pesos, at an exchange rate of Ps.59.8950 per US$1.
(2) Adjusted for forward sales and purchases of foreign exchange, without delivery of underlying assets and recorded in Memorandum Accounts.
As of December 31, 2019, considering the adjustments from forward transactions recorded under memorandum accounts, Grupo Financiero Galicia had net asset positions in foreign currency and Pesos adjusted and non-adjusted.
The paragraphs below describe the composition of the different currency mismatches of assets and liabilities as of December 31, 2019:
Assets and Liabilities Denominated in Foreign Currency
As of December 31, 2019, the Grupo Financiero Galicia’s assets denominated in foreign currency were mainly comprised of the following: (i) Ps.91,749 million of cash and balances from the Argentine Central Bank and correspondent banks; (ii) Ps.98,556 million for loans (principal plus interest) and other financing, including Ps.1,521 million for receivables for financial leases; (iii) Ps.5,301 million for debt securities, primarily financial trusts; (iv) Ps.5,563 million for government and private securities (v) Ps.2,404 million for other financial assets and (vi) Ps.1,753 million for assets pledged as collateral, including forward purchases of government securities.
The liabilities denominated in foreign currency consisted mainly of: (i) Ps.143,198 million for deposits (principal, interest and quotation differences); (ii) Ps.17,991 million for payables to banks and international credit entities; (iii) Ps.21,669 million for subordinated and unsubordinated notes issued by Banco Galicia; and (iv) Ps.12,896 million for other financial liabilities, mainly collections on behalf of third parties.
A net asset position of Ps.8,780 million stemmed from the consolidated balance sheet. Furthermore, forward transactions in foreign currency without delivery of the underlying asset were recorded in memorandum accounts, which, in terms of their notional value, were equal to a net asset position of Ps.22 million. Therefore, as of that date, the net position in foreign currency adjusted to reflect these transactions was a net asset position of Ps.8,803 million, equivalent to US$147 million.
Banco Galicia has set limits as regards foreign-currency mismatches at -9% of the Bank’s RPC for its net liability position and at +30% of the Bank’s RPC for its net asset position. At the fiscal year-end, Banco Galicia's net asset position in foreign currency represented 9.4% of its RPC.
Non-Adjusted Peso-Denominated Assets and Liabilities
Grupo Financiero Galicia’s non-adjusted Peso-denominated assets at December 31, 2019 were mainly comprised of the following: (i) Ps.233,353 million for loans (principal plus interest, net of allowances) including
Ps.682 million for receivables from financial leases and Ps.2,544 million for miscellaneous receivables; (ii) Ps.58,141 million for the holding of securities issued by the Argentine Central Bank. (LELIQ); (iii) Ps.46,425 million for cash and balances held at the Argentine Central Bank and correspondent banks (including the balance of escrow accounts); (iv) Ps.30,075 million for repurchase transactions; (v) Ps.15,705 million for the holding of government and private securities, including Ps.10,949 million for BOTE 2020; (vi). Ps.8,511 million for “Other Financial Assets”, out of which Ps.643 million was related to mutual funds of Tarjetas Regionales; and (vii) Ps.2,272 million pledged as collateral.
Grupo Financiero Galicia’s non-adjusted Peso-denominated liabilities at December 31, 2019 were mainly comprised of the following (i) Ps.248,588 million for deposits (principal plus interest); (ii) Ps.48,034 million for liabilities payable to stores, credit card transactions of Banco Galicia and Tarjetas Regionales; (iii) Ps.23,071 million for notes issued by Banco Galicia and Tarjetas Regionales; (iv) Ps.7,911 million for other financial liabilities; (v) Ps.4,732 million for debt incurred with local financial institutions and (vi) Ps.2,516 million for amounts payable for future transactions and transactions pending settlement of government securities and foreign currency.
The net asset position in non-adjusted Peso-denominated assets and liabilities was Ps.66,332 million at December 31, 2019.
Peso-Denominated Assets and Liabilities Adjusted by UVA
At December 31, 2019, the net asset position amounted to Ps.26,385 million, which is primarily comprised of Ps.26,515 million for loans, mainly UVA mortgage loans and Ps.1,820 million for miscellaneous receivables.
With respect to liabilities, Ps.1,175 million was related to UVA-adjusted time deposits and Ps.775 million related to balances of the unemployment fund of construction workers.
Other Assets and Liabilities
As of December 31, 2019, “Other Assets - Liabilities” mainly included the following: (i) property, plant and equipment, miscellaneous and intangible assets for Ps.44,134 million; and (ii) miscellaneous receivables for Ps.2,807 million.
As of December 31, 2019, liabilities mainly included the following: (i) Ps.16,590 million recorded in “Other Non-financial Liabilities”; (ii) Ps.10,315 million for current income tax liabilities; and (iii) Ps.2,747 million for provisions for other contingencies.
Market Risk
The exposure to portfolios of listed financial instruments, whose value varies according to the movement in their market prices, is subject to a specific policy framework that regulates the risk of incurring a loss as a consequence of the variation of the market price of financial assets whose value is subject to negotiation.
Brokerage transactions and/or investments in government securities, currencies, notes, derivative products and debt instruments issued by the Argentine Central Bank are governed by the policy that limits the maximum tolerable losses in a given fiscal year.
In order to gauge and monitor this source of risk, the model known as VaR is used, among others. This model determines intra-daily, for the Bank individually, the possible loss that could be generated by the positions in equity securities, currencies, derivative instruments, and debt securities issued by the Argentine Central Bank and currencies under certain parameters.
The parameters taken into consideration are as follows:
(i) A 99% degree of accuracy.
(ii) VaR estimates are made for holding periods of one day and “n” days, where “n” is defined as the number of days necessary to settle the position in each security.
(iii) In the case of securities, if they are new issuances, the available trading days are taken into consideration for the calculation of volatilities; if there are not enough trading days or if there are no quotations, the volatility of bonds from domestic issuers with similar risk and characteristics is used.
Banco Galicia’s policy requires that the Risk Management and Treasury Divisions agree on the parameters under which the models work, and establishes the maximum losses authorized both for equity securities, foreign-currency, Argentine Central Bank’s debt instruments and derivative products in a fiscal year. Maximum losses were established in:
Risk | Policy on Limits | |
(in millions of Pesos) | ||
Currency | 250 | |
Fixed-income instruments | 680 | |
Interest rate derivatives | 70 | |
Variable income | 1 |
Furthermore, the policy includes the regular undertaking of stress tests, the goal of which is to assess the risk positions and their results, under adverse market conditions. Finally, “contingency plans” were designed for each transaction, which include the actions to be implemented in a critical scenario.
Cross-Border Risk
Cross-border risk represents the risk of incurring equity losses as a consequence of the impairment or failure to collect on foreign credit exposures (loans, securities holdings, equity investments, and cash) abroad. It includes risks generated by entering into transactions with public or private counterparties domiciled outside of Argentina.
In order to regulate risk exposures in international jurisdictions, limits were established taking into consideration the jurisdiction’s credit rating, the type of transaction and a maximum exposure acceptable for each counterparty.
The Bank defined its policy by setting maximum exposure limits measured as a percentage of its RPC and taking into account if the counterparty is considered investment grade:
Risk | Required Credit Rating | Investment Grade | Not Investment Grade | |||
-Jurisdictional Risk | -International Rating Agency | -No limit | -Maximum limit: 5% | |||
-Counterparty Risk | -International Banking Relations -Credit Division | -Maximum limit: 15% -The limit is distributed between financial and foreign trade transactions, thus absorbing local counterparty margin | -Maximum limit: 1% -Only foreign trade transactions |
Overseas Foreign Currency Transfer Risk
With a view towards mitigating the risk resulting from a potential change in domestic laws that may affect overseas foreign currency transfers and in order to meet incurred liabilities, a policy was devised to set a limit for liabilities transferred abroad, as a proportion to total consolidated liabilities. Such ratio was fixed at 15%.
As of December 31, 2019, such exposure was 10.4% over total liabilities
Risk Exposures in the Non-Financial Public Sector
The Argentine Central Bank imposes restrictions with respect to financing for the non-financial Public Sector and establishes limits in connection with the agencies that can be aided, the types of permitted loans and maximum amounts that can be granted. Such maximum amounts are set on the basis of the Bank’s RPC.
Banco Galicia provides two types of financial assistance to such sector: (i) assistance through the issuance of government securities; and (ii) direct assistance through loans, leasing, corporate securities, discounted notes, overdrafts, guarantees granted, foreign trade transactions, payroll loans, credit cards, etc.
Risk exposures on loans granted to such sector in national, provincial and municipal jurisdictions are governed by a specific policy, applicable to agencies within such jurisdictions, decentralized entities, companies and trust funds with underlying cash flows from the non-financial public sector.
Item 12. Description of Securities Other Than Equity Securities
D. American Depositary Shares
Fees and Charges Applicable to ADS Holders
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay | For: | |
Ps.5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
Ps.0.02 (or less) per ADS | Any cash distribution to ADS registered holders | |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | |
Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | |
Expenses of the depositary | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | |
Converting foreign currency to Dollars | ||
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes. | As necessary | |
Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Fees and Direct and Indirect Payments Made by the Depositary to Us
Past Fees and Payments
Grupo Financiero Galicia received a payment of US$ 283,948 for fiscal year 2019, US$267,815 for fiscal year 2018 and US$286,530 for fiscal year 2017 in relation to continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses for filing annual and interim financial reports, relevant information reports, processing dividend distribution, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, and telephone and conference calls), accounting fees and legal fees.
Future Fees and Payments
The Bank of New York Mellon, as depositary, has agreed to reimburse the Company for expenses they incur that are related to establishment and maintenance expenses of the ADSs program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees and certain accounting and legal fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consists of the expenses for filing annual and interim financial reports, relevant information reports, processing dividend distributions, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, and telephone and conference calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. There are limits on the amount of expenses for which the depositary will reimburse the Company and the amount of reimbursement available to the Company is subject to the amount of fees the depositary collects from investors in any given fiscal year.
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
We expect to receive a similar reimbursement from the depositary for expenses for the fiscal year ending December 31, 2020 to the one we received for the fiscal year ended December 31, 2019.
Not applicable.
Not applicable.
(a) Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended). We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with or submit to the SEC under the Exchange Act, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. Our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to provide reasonable assurance of their reliability. Notwithstanding the effectiveness of our disclosure controls and procedures, these disclosure controls and procedures cannot provide absolute assurance of achieving their objectives because of their inherent limitations. Disclosure controls and procedures are processes that involve human diligence and compliance and are subject to error in judgment. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by our disclosure controls and procedures.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
1)Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us and our consolidated subsidiaries. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. Internal control over financial reporting includes those policies and procedures that:
- pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of Grupo Galicia are being made only in accordance with authorizations of our management and directors; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
2)Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework 2013 issued by the COSO.
3)Based on our assessment, we and our management have concluded that our internal control over financial reporting was effective as of December 31, 2019.
4)The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PriceWaterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their report which is included herein.
(c) See Item 18. “Financial Statements–Report of the Independent Registered Public Accounting Firm” for our registered public accounting firm’s attestation report on the effectiveness of our internal control over financial reporting.
(d) Changes in Internal Control over Financial Reporting During the Year Ended December 31, 2019.
Item 16A. Audit Committee Financial Expert
Mr. Daniel Llambías was the financial expert serving on our Audit Committee for fiscal year ended December 31, 2019.
Item 16C. Principal Accountants’ Fees and Services
The following table sets forth the total amount billed to us by our independent registered public accounting firm, Price Waterhouse & Co. S.R.L., during the fiscal years ended December 31, 2019 and 2018.
|
| 2019 |
|
| 2018 |
| ||
|
| (in thousands of Pesos) |
| |||||
Audit Fees |
|
| 81,269 |
|
|
| 68,522 |
|
Audit Related Fees |
|
| 12,300 |
|
|
| 11,097 |
|
Tax Fees |
|
| 18,147 |
|
|
| 16,131 |
|
All Other Fees |
|
| 6,506 |
|
|
| 5,068 |
|
Total |
|
| 118,222 |
|
|
| 100,818 |
|
Audit Fees
Audit fees are mainly the fees billed in relation with professional services for auditing our consolidated financial statements under local and IFRS requirements for the fiscal years ended December 31, 2019 and December 31, 2018.
Audit-Related Fees
Audit-related fees are fees billed for professional services related to attestation, review and verification services with respect to our financial information and the provision of services in connection with special reports in 2019 and 2018.
Tax Fees
Tax fees are fees billed with respect to tax compliance and advisory services related to tax liabilities.
All Other Fees
All other fees include fees paid for professional services other than the services reported above under “audit fees”, “audit related fees” and “tax fees” in each of the fiscal periods above.
Audit Committee Pre-approval
Our audit committee is required to pre-approve all audit and non-audit services to be provided by our independent registered public accounting firm. Our Audit Committee has reviewed and approved audit and non-audit services fees proposed by our independent auditors.
Not applicable.
None.
Not applicable.
See Item 6. “Directors, Senior Management and Employees”—“Nasdaq Corporate Governance Standards” for a summary of ways in which the Company’s corporate governance practices differ from those followed by U.S. companies.
Not applicable.
PART III
Item 17. Financial Statements
Not applicable.
Report of the Independent Registered Public Accounting Firm as of and for the fiscal year ended December 31, 2019.
Consolidated Statements of Financial Position for the years ended December 31, 2019 and 2018.
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017.
Notes to the Consolidated Financial Statements.
You can find our audited consolidated financial statements on pages F-1 to F-106 of this annual report.
Exhibit | Description | ||
Unofficial English language translation of the Bylaws (estatutos sociales).**** | |||
Bond Subscription Agreement, dated as
| |||
| |||
| |||
| * | Incorporated by reference from our Registration Statement on Form F-4 (333-11960). |
| * * | Incorporated by reference from our Annual Report on Form 20-F for
|
| * * * | Incorporated by reference from our Annual Report on |
| * * * * | Incorporated by reference from our Annual Report on Form 20-F for the |
| * * * * * | Incorporated by reference from
|
SIGNATURE
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
GRUPO FINANCIERO GALICIA S.A. | ||
By: | /s/ Pedro Alberto Richards | |
Name: | Pedro Alberto Richards | |
Title: | Chief Executive Officer | |
By: | /s/ José Luis Ronsini | |
Name: | José Luis Ronsini | |
Title: | Chief Financial Officer | |
Date: April 29, 2020
GRUPO FINANCIERO GALICIA S.A. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | ||||
| F-1 | ||||
| F-2 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-9 | ||||
| F-10 |
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Shareholders of Grupo Financiero Galicia S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Grupo Financiero Galicia S.A. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of income, other comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing on Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements, and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value of certain Level 3 Financial Instruments
As described in Notes 2.a and 4 to the consolidated financial statements, the Company carries Ps. 95,250,490 thousands of its assets and Ps. 2,303,256 thousands of its liabilities at fair value on a recurring basis. Included in these balances are Ps. 11,732,299 thousands of financial assets which are classified as level 3 as they contain one or more inputs to valuation which are unobservable and significant to their fair value measurement. The Company utilized internally developed valuation models and unobservable inputs, including discount rates and volatilities and correlations relating to interest rates and spreads, to estimate fair value of the level 3 financial instruments. These valuation techniques require management to make estimates and judgments for complex instruments involving valuation models.
The principal considerations for our determination that performing procedures relating to the fair value of certain level 3 financial instruments is a critical audit matter are (i) there was significant judgment by management in evaluating the models and methodologies and determining the inputs, such as discount rates and volatilities and correlations relating to interest rates and spreads, to estimate fair value, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures related to the fair value of these financial instruments, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s processes for determining fair value of level 3 financial instruments which include controls over models, inputs, and data. These procedures also included, among others, for a sample of financial instruments, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of fair value and testing management’s process to determine the fair value of these financial instruments. Developing the independent estimate involved testing the completeness and accuracy of data provided by management, developing independent significant unobservable inputs, and comparing management’s estimate to the independently developed estimate of fair value. Testing management’s process included evaluating the reasonableness of the aforementioned significant unobservable inputs, evaluating the appropriateness of the methods used, and testing the completeness and accuracy of data provided by management to determine the fair value of these instruments.
Allowance for loan losses
As described in Notes 1.11, 2.b and 45 to the consolidated financial statements, the Company’s allowance for loan losses was Ps. 26,143,103 thousands as of December 31, 2019. The Company assesses impairment by estimating the expected credit losses. Management’s models to determine the expected credit loss involve significant judgement, including aspects such as defining what is considered to be a significant increase in credit risk, identifying assets which are impaired or subject to serious risk of impairment, developing parameters such as the probabilities of default and the loss given default, and making assumptions about macroeconomic scenarios considering a range of possible economic outcomes, calculated on a probability-weighted basis.
The principal considerations for our determination that performing procedures relating to the estimation of the allowance for loan losses is a critical audit matter are (i) there was significant judgment by management to assess impairment by estimating the expected credit losses which in turn led to significant auditor judgment and effort in performing procedures to evaluate the audit evidence related to the models and assumptions used to determine the expected credit losses and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s allowance for loan losses estimation processes, which included controls over the data, models and assumptions used in the estimation process. These procedures also included, among others, evaluating the appropriateness of the models used by management and the reasonableness of assumptions made in the allowance for loan losses estimation, and testing the completeness and accuracy of data provided by management. Professionals with specialized skill and knowledge were used to assist in testing management’s process for determining the allowance for loan losses, including evaluating (i) the reasonableness of the assumptions used by management, (ii) the reasonableness of management’s criteria for defining what is considered to be a significant increase in credit risk and identifying assets which are impaired or subject to serious risk of impairment, (iii) the appropriateness of the models utilized for the estimation of parameters such as the probabilities of default and the loss given default, and (iv) the appropriateness of the methodology used for the generation of macroeconomic scenarios.
/s/ PRICE WATERHOUSE & Co. S.R.L.
/s/ SEBASTIÁN MORAZZO (Partner)
Sebastián Morazzo
Buenos Aires, Argentina
April 28, 2020.
We have served as the Company’s auditor since 1999.
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
Items | Notes | 12.31.19 | 12.31.18 | |||||||||
Assets | ||||||||||||
Cash and Due from Banks | 5 | 130,649,061 | 220,456,335 | |||||||||
Cash | 52,728,463 | 32,597,069 | ||||||||||
Financial Institutions and Correspondents | 77,920,598 | 187,859,266 | ||||||||||
Argentine Central Bank (BCRA) | 75,542,241 | 183,353,781 | ||||||||||
Other, Local and Foreign Financial Institutions | 2,378,357 | 4,505,485 | ||||||||||
Debt Securities at fair value through profit or loss | 6 | 65,690,460 | 116,812,885 | |||||||||
Derivative Financial Instruments | 7 | 2,329,074 | 2,746,893 | |||||||||
Repurchase Transactions | 8 | 30,075,478 | 3,181,371 | |||||||||
Other Financial Assets | 9 | 10,915,334 | 13,918,651 | |||||||||
Loans and Other Financing | 10 | 358,558,869 | 434,899,689 | |||||||||
Non-financial Public Sector | 4,977 | 18,117 | ||||||||||
Argentine Central Bank (BCRA) | 22,374 | 820 | ||||||||||
Other Financial Institutions | 10,612,457 | 11,568,034 | ||||||||||
To theNon-financial Private Sector and Residents Abroad | 347,919,061 | 423,312,718 | ||||||||||
Other Debt Securities | 11 | 19,019,630 | 22,188,992 | |||||||||
Financial Assets Pledged as Collateral | 12 | 11,550,586 | 16,640,808 | |||||||||
Current Income Tax Assets | 13 | 40,503 | 146,015 | |||||||||
Investments in Equity Instruments | 14 | 4,554,453 | 247,753 | |||||||||
Property, Plant and Equipment | 16 and 17 | 32,963,986 | 29,785,930 | |||||||||
Intangible Assets | 18 | 8,692,712 | 7,056,518 | |||||||||
Deferred Income Tax Assets | 19 | 2,806,937 | 1,496,751 | |||||||||
Assets for Insurance Contracts | 20 | 1,181,512 | 1,511,406 | |||||||||
OtherNon-financial Assets | 21 | 6,451,408 | 4,345,410 | |||||||||
Non-current Assets Held for Sale | 22 | 39,008 | 935,324 | |||||||||
|
|
|
| |||||||||
Total Assets | 685,519,011 | 876,370,731 | ||||||||||
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|
|
| |||||||||
The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
F-2
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Continued)
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
Items | Notes | 12.31.19 | 12.31.18 | |||||||||
Liabilities | ||||||||||||
Deposits | 23 | 393,735,406 | 553,946,288 | |||||||||
Non-financial Public Sector | 1,933,141 | 13,182,488 | ||||||||||
Financial Sector | 450,934 | 1,094,882 | ||||||||||
Non-financial Private Sector and Residents Abroad | 391,351,331 | 539,668,918 | ||||||||||
Liabilities at fair value through profit or loss | 24 | 1,422,157 | 3,299,188 | |||||||||
Derivative Financial Instruments | 7 | 881,099 | 2,824,038 | |||||||||
Repurchase Transactions | 8 | — | 2,997,515 | |||||||||
Other Financial Liabilities | 25 | 71,362,718 | 97,275,984 | |||||||||
Financing Received from the Argentine Central Bank and Other Financial Institutions | 26 | 22,723,687 | 29,914,292 | |||||||||
Debt Securities | 27 | 29,240,851 | 46,124,574 | |||||||||
Current Income Tax Liabilities | 41 | 10,314,510 | 5,318,923 | |||||||||
Subordinated Debt Securities | 28 | 15,499,212 | 15,026,155 | |||||||||
Provisions | 29 | 2,746,966 | 2,229,528 | |||||||||
Deferred Income Tax Liabilities | 19 | 2,218,701 | 2,928,424 | |||||||||
Liabilities for Insurance Contracts | 20 | 1,468,635 | 1,697,110 | |||||||||
OtherNon-financial Liabilities | 30 | 17,070,098 | 17,646,932 | |||||||||
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|
|
| |||||||||
Total Liabilities | 568,684,040 | 781,228,951 | ||||||||||
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| |||||||||
Shareholders’ Equity | 31 | |||||||||||
Capital Stock | 1,426,765 | 1,426,765 | ||||||||||
Paid-in capital | 10,951,132 | 10,951,132 | ||||||||||
Capital Adjustments | 41,243,535 | 41,243,535 | ||||||||||
Profit Reserves | 93,468,632 | 67,191,177 | ||||||||||
Retained Deficit | (57,261,059 | ) | (22,991,245 | ) | ||||||||
Other Comprehensive Income | 404,831 | 2,160 | ||||||||||
Income / (Loss) for the Year | 43 | 23,708,123 | (5,331,559 | ) | ||||||||
Shareholders’ Equity Attributable to Parent Company’s Owners | 113,941,959 | 92,491,965 | ||||||||||
Shareholders’ Equity Attributable toNon-controlling Interests | 50 | 2,893,012 | 2,649,815 | |||||||||
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|
|
| |||||||||
Total Shareholders’ Equity | 116,834,971 | 95,141,780 | ||||||||||
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|
| |||||||||
The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2019
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
Items | Notes | 12.31.19 | 12.31.18 | 12.31.17 | ||||||||||
Interest Income | 32 | 130,505,867 | 120,410,448 | 84,136,666 | ||||||||||
Interest Expense | 32 | (95,676,156 | ) | (69,086,632 | ) | (38,180,721 | ) | |||||||
Net Income from Interest | 34,829,711 | 51,323,816 | 45,955,945 | |||||||||||
Fee Income | 32 | 35,145,091 | 37,530,202 | 37,567,216 | ||||||||||
Fee related Expenses | 32 | (7,061,448 | ) | (4,655,118 | ) | (5,003,914 | ) | |||||||
Net Fee Income | 28,083,643 | 32,875,084 | 32,563,302 | |||||||||||
Net Income from Financial Instruments Measured at Fair Value through Profit or Loss | 32 | 72,830,225 | 26,694,103 | 13,016,280 | ||||||||||
Income from Derecognition of Assets Measured at Amortized Cost | 219,480 | 340,953 | — | |||||||||||
Exchange rate differences on gold and foreign currency | 33 | 8,690,613 | 5,810,359 | 5,351,615 | ||||||||||
Other Operating Income | 34 | 21,132,149 | 16,059,120 | 15,343,582 | ||||||||||
Income from Insurance Business | 35 | 3,673,312 | 4,413,942 | 5,099,409 | ||||||||||
Loan and other Receivables Loss Provisions | 36 | (22,203,274 | ) | (25,074,262 | ) | (11,220,314 | ) | |||||||
Net Operating Income | 147,255,859 | 112,443,115 | 106,109,819 | |||||||||||
Personnel Expenses | 37 | (24,448,962 | ) | (26,191,885 | ) | (26,287,914 | ) | |||||||
Administrative Expenses | 38 | (24,316,921 | ) | (24,734,949 | ) | (22,188,104 | ) | |||||||
Depreciation and Impairment of Assets | 39 | (5,064,576 | ) | (2,541,273 | ) | (2,214,325 | ) | |||||||
Other Operating Expenses | 40 | (25,769,551 | ) | (25,996,238 | ) | (22,467,570 | ) | |||||||
Loss on net monetary position | (30,798,238 | ) | (27,787,774 | ) | (10,496,441 | ) | ||||||||
Operating Income | 36,857,611 | 5,190,996 | 22,455,465 | |||||||||||
Share of profit from Associates and Joint Ventures | — | — | 494,082 | |||||||||||
Income before Taxes from Continuing Operations | 36,857,611 | 5,190,996 | 22,949,547 | |||||||||||
Income Tax from Continuing Operations | 41 | (13,038,494 | ) | (10,633,705 | ) | (11,259,035 | ) | |||||||
Net Income / (Loss) from Continuing Operations | 23,819,117 | (5,442,709 | ) | 11,690,512 | ||||||||||
Loss from Discontinued Operations | 22 | — | (399,589 | ) | — | |||||||||
Income Tax from Discontinued Operations | 41 | — | (48,726 | ) | (494,971 | ) | ||||||||
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Net Income / (Loss) for the Year | 23,819,117 | (5,891,024 | ) | 11,195,541 | ||||||||||
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Net Income / (Loss) for the Year Attributable to parent company’s owners | 23,708,123 | (5,331,559 | ) | 10,450,740 | ||||||||||
Net Income / (Loss) for the Year Attributable toNon-controlling Interests | 50 | 110,994 | (559,465 | ) | 744,801 | |||||||||
Items | Notes | 12.31.19 | 12.31.18 | 12.31.17 | ||||||||||
Earnings per Share | 43 | |||||||||||||
Net Income / (Loss) Attributable to parent company’s owners | 23,708,123 | (5,331,559 | ) | 10,450,740 | ||||||||||
Net Income / (Loss) Attributable to parent company’s owners Adjusted by dilution effects | 23,708,123 | (5,331,559 | ) | 10,450,740 | ||||||||||
Weighted-Average of Ordinary Shares Outstanding for the Year | 1,426,765 | 1,426,765 | 1,332,617 | |||||||||||
Diluted Weighted-Average of Ordinary Shares Outstanding for the Year | 1,426,765 | 1,426,765 | 1,332,617 | |||||||||||
Basic Earnings per Share | 16.62 | (3.74 | ) | 7.84 | ||||||||||
Diluted Earnings per Share | 16.62 | (3.74 | ) | 7.84 | ||||||||||
The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2019
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
Items | Notes | 12.31.19 | 12.31.18 | 12.31.17 | ||||||||||
Net Income / (Loss) for the Year | 23,819,117 | (5,891,024 | ) | 11,195,541 | ||||||||||
Items of Other Comprehensive Income (OCI) that may be Reclassified to Profit or Loss for the Year | ||||||||||||||
Income or Loss from Financial Instruments at Fair Value through OCI (Item 4.1.2a, IFRS 9) | ||||||||||||||
Income / (Loss) for the Year from Financial Instruments at Fair Value with Changes through OCI(*) | 32 | 402,671 | (134,580 | ) | (668,759 | ) | ||||||||
Total Other Comprehensive Income (Loss) that may be Reclassified to Profit or Loss for the Year | 402,671 | (134,580 | ) | (668,759 | ) | |||||||||
Total Other Comprehensive Income (Loss) | 402,671 | (134,580 | ) | (668,759 | ) | |||||||||
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| |||||||||
Total Comprehensive Income / (Loss) | 24,221,788 | (6,025,604 | ) | 10,526,782 | ||||||||||
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Total Comprehensive Income / (Loss) Attributable to Parent company’s owners | 24,110,794 | (5,466,139 | ) | 9,781,981 | ||||||||||
Total Comprehensive Income / (Loss) Attributable toNon-controlling Interests | 50 | 110,994 | (559,465 | ) | 744,801 | |||||||||
| (*) | Net of Income Tax. |
The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE FISCAL YEAR COMMENCED JANUARY 1, 2019 AND ENDED DECEMBER 31, 2019, IN COMPARATIVE FORMAT
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
| Capital Stock | Paid-in Capital | Other Comprehensive Income | Profit Reserves | |||||||||||||||||||||||||||||||||||||||||||
Changes | Notes | Outstanding | Share Premium | Equity Adjustments | Accumulated Profit (Loss) from Financial Instruments at Fair Value through OCI | Other | Legal Reserve | Others Reserves | Retained Earnings | Total Shareholders’ Equity Attributable to parent company’s owners | Total Shareholders’ Equity Attributable to Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||
Balances as of 12.31.18 | 1,426,765 | 10,951,132 | 41,243,535 | 2,160 | — | 952,238 | 66,238,939 | (28,322,804 | ) | 92,491,965 | 2,649,815 | 95,141,780 | ||||||||||||||||||||||||||||||||||
Capital Contribution from Non-controlling Interest | 50 | — | — | — | — | — | — | �� | — | — | — | 132,203 | 132,203 | |||||||||||||||||||||||||||||||||
Distribution of Profits | ||||||||||||||||||||||||||||||||||||||||||||||
- Cash Dividends | 42 | — | — | — | — | — | — | — | (2,660,800 | ) | (2,660,800 | ) | — | (2,660,800 | ) | |||||||||||||||||||||||||||||||
- Other Reserves | — | — | — | — | — | — | 26,277,455 | (26,277,455 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Total Comprehensive Income for the Year | — | |||||||||||||||||||||||||||||||||||||||||||||
Net Income for the Year | 43 | — | — | — | — | — | — | — | 23,708,123 | 23,708,123 | 110,994 | 23,819,117 | ||||||||||||||||||||||||||||||||||
Other Comprehensive Income for the Year | — | — | — | 402,671 | — | — | — | — | 402,671 | — | 402,671 | |||||||||||||||||||||||||||||||||||
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Balances as of 12.31.19 | 1,426,765 | 10,951,132 | 41,243,535 | 404,831 | — | 952,238 | 92,516,394 | (33,552,936 | ) | 113,941,959 | 2,893,012 | 116,834,971 | ||||||||||||||||||||||||||||||||||
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The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
F-6
GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)
FOR THE FISCAL YEAR COMMENCED JANUARY 1, 2019 AND ENDED DECEMBER 31, 2019, IN COMPARATIVE FORMAT
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
| Capital Stock | Paid-in Capital | Other Comprehensive Income | Profit Reserves | |||||||||||||||||||||||||||||||||||||||||||
Changes | Notes | Outstanding | Share Premium | Equity Adjustments | Accumulated Profit (Loss) from Financial Instruments at Fair Value through OCI | Other | Legal Reserve | Others Reserves | Retained Earnings | Total Shareholders’ Equity Attributable to parent company’s owners | Total Shareholders’ Equity Attributable to Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||
Balances as of 12.31.17 | 1,426,765 | 10,951,132 | 41,243,535 | 136,740 | — | 894,775 | 48,918,234 | (4,311,076 | ) | 99,260,105 | 4,543,410 | 103,803,515 | ||||||||||||||||||||||||||||||||||
Purchase ofNon-controlling Interests | 50 | — | — | — | — | — | — | 1,185,236 | 1,185,236 | (1,185,236 | ) | — | ||||||||||||||||||||||||||||||||||
Dividends Distribution from Tarjetas Regionales S.A. | 50 | — | — | — | — | — | — | — | — | — | (148,894 | ) | (148,894 | ) | ||||||||||||||||||||||||||||||||
Distribution of Profits | ||||||||||||||||||||||||||||||||||||||||||||||
- Cash Dividends | 42 | — | — | — | — | — | — | (2,487,237 | ) | (2,487,237 | ) | — | (2,487,237 | ) | ||||||||||||||||||||||||||||||||
- Other Reserves | — | — | — | — | — | 57,463 | 16,135,469 | (16,192,932 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Total Comprehensive Income for the Year | — | |||||||||||||||||||||||||||||||||||||||||||||
Net Loss for the Year | 43 | — | — | — | — | — | — | — | (5,331,559 | ) | (5,331,559 | ) | (559,465 | ) | (5,891,024 | ) | ||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) for the Year | — | — | — | (134,580 | ) | — | — | — | — | (134,580 | ) | — | (134,580 | ) | ||||||||||||||||||||||||||||||||
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Balances as of 12.31.18 | 1,426,765 | 10,951,132 | 41,243,535 | 2,160 | — | 952,238 | 66,238,939 | (28,322,804 | ) | 92,491,965 | 2,649,815 | 95,141,780 | ||||||||||||||||||||||||||||||||||
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| The accompanying Notes and Schedules are an integral part of these consolidated financial statements. |
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GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)
FOR THE FISCAL YEAR COMMENCED JANUARY 1, 2019 AND ENDED DECEMBER 31, 2019, IN COMPARATIVE FORMAT
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
| Capital Stock | Paid-in Capital | Other Comprehensive Income | Profit Reserves | |||||||||||||||||||||||||||||||||||||||||||
Changes | Notes | Outstanding | Share Premium | Equity Adjustments | Accumulated Profit (Loss) from Financial Instruments at Fair Value through OCI | Other | Legal Reserve | Others Reserves | Retained Earnings | Total Shareholders’ Equity Attributable to parent company’s owners | Total Shareholders’ Equity Attributable to Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||
Balances as of 01.01.17 | 1,300,265 | 219,596 | 278,131 | — | — | 315,679 | 12,221,152 | 6,017,877 | 20,352,700 | — | 20,352,700 | |||||||||||||||||||||||||||||||||||
Impact of first-time adoption of IFRS | — | — | 25,698,161 | 805,499 | — | 579,096 | 22,418,994 | (3,778,345 | ) | 45,723,405 | 4,183,580 | 49,906,985 | ||||||||||||||||||||||||||||||||||
Balances as of 01.01.17 | 1,300,265 | 219,596 | 25,976,292 | 805,499 | — | 894,775 | 34,640,146 | 2,239,532 | 66,076,105 | 4,183,580 | 70,259,685 | |||||||||||||||||||||||||||||||||||
Disposal of Equity Interest in Tarjeta del Mar S.A. | — | — | — | — | — | — | — | — | — | (141,327 | ) | (141,327 | ) | |||||||||||||||||||||||||||||||||
Purchase ofNon-controlling Interests | 50 | — | — | — | — | — | — | (2,098,970 | ) | — | (2,098,970 | ) | (8,750 | ) | (2,107,720 | ) | ||||||||||||||||||||||||||||||
Dividends Distribution from Tarjetas Regionales S.A. | 50 | — | — | — | — | — | — | — | — | — | (234,894 | ) | (234,894 | ) | ||||||||||||||||||||||||||||||||
| Distribution of Profits | ||||||||||||||||||||||||||||||||||||||||||||||
- Cash Dividends | 42 | — | — | — | — | — | — | — | (624,290 | ) | (624,290 | ) | — | (624,290 | ) | |||||||||||||||||||||||||||||||
- Other Reserves | — | — | — | — | — | — | 16,377,058 | (16,377,058 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Capital Increase | 126,500 | 10,731,536 | 15,267,243 | — | — | — | — | — | 26,125,279 | — | 26,125,279 | |||||||||||||||||||||||||||||||||||
Total Comprehensive Income for the Year | ||||||||||||||||||||||||||||||||||||||||||||||
Net Income for the Year | 43 | — | — | — | — | — | — | — | 10,450,740 | 10,450,740 | 744,801 | 11,195,541 | ||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) for the Year | — | — | — | (668,759 | ) | — | — | — | — | (668,759 | ) | — | (668,759 | ) | ||||||||||||||||||||||||||||||||
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Balances as of 12.31.17 | 1,426,765 | 10,951,132 | 41,243,535 | 136,740 | — | 894,775 | 48,918,234 | (4,311,076 | ) | 99,260,105 | 4,543,410 | 103,803,515 | ||||||||||||||||||||||||||||||||||
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| The accompanying Notes and Schedules are an integral part of these consolidated financial statements. |
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GRUPO FINANCIERO GALICIA S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR COMMENCED JANUARY 1, 2019 AND ENDED DECEMBER 31, 2019, IN COMPARATIVE FORMAT
Figures Stated in Thousands of Argentine Pesos (Ps.), Except as Otherwise Provided
Items | Notes | 12.31.19 | 12.31.18 | 12.31.17 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Income before Taxes from Continuing Operation | 36,857,611 | 5,190,996 | 22,949,547 | |||||||||||||
Adjustment to Obtain the Operating Activities Flows: | ||||||||||||||||
Loan and other Receivables Loss Provisions | 22,203,274 | 25,074,262 | 11,220,314 | |||||||||||||
Depreciation and Impairment of Assets | 5,064,576 | 2,541,273 | 2,214,325 | |||||||||||||
Loss on Net Monetary Position | 30,798,238 | 27,787,774 | 10,496,441 | |||||||||||||
Other Operations | 42,150,670 | (27,980,614 | ) | 8,083,355 | ||||||||||||
Net Increases/(Decreases) from Operating Assets: | ||||||||||||||||
Debt securities measured at fair value through profit or loss | 1,400,612 | 18,379,932 | (5,383,338 | ) | ||||||||||||
Derivative Financial Instruments | 417,819 | (1,553,655 | ) | (840,290 | ) | |||||||||||
Repo Transactions | (3,060,443 | ) | 461,265 | (2,141,780 | ) | |||||||||||
Other Financial Assets | 2,011,201 | 2,418,304 | (6,278,465 | ) | ||||||||||||
Net Loans and Other Financing | ||||||||||||||||
-Non-financial Public Sector | 13,140 | (4,992 | ) | 37,705 | ||||||||||||
- Other Financial Institutions | (788,373 | ) | 5,570,160 | (5,895,179 | ) | |||||||||||
-Non-financial Private Sector and Residents Abroad | 53,239,351 | (21,299,981 | ) | (67,534,701 | ) | |||||||||||
Other Debt Securities | 3,169,363 | (15,754,896 | ) | (1,536,299 | ) | |||||||||||
Financial Assets Pledged as Collateral | 5,090,222 | (2,262,419 | ) | 1,151,905 | ||||||||||||
Investments in Equity Instruments | (4,306,700 | ) | (75,579 | ) | 115,701 | |||||||||||
OtherNon-financial Assets | (1,622,985 | ) | (1,736,682 | ) | (2,625,493 | ) | ||||||||||
Non-current Assets Held for Sale | 896,316 | 15,771,013 | 90,801 | |||||||||||||
Net Increases/(Decreases) from Operating Liabilities: | ||||||||||||||||
Deposits | ||||||||||||||||
-Non-financial Public Sector | (11,249,347 | ) | 10,538,444 | (1,024,969 | ) | |||||||||||
- Financial Sector | (643,948 | ) | 833,341 | 83,092 | ||||||||||||
-Non-financial Private Sector and Residents Abroad | (148,317,590 | ) | 86,665,483 | 30,615,828 | ||||||||||||
Liabilities at fair value through profit or loss | (1,877,031 | ) | 3,299,188 | — | ||||||||||||
Derivative Financial Instruments | (1,942,940 | ) | 1,522,107 | 855,225 | ||||||||||||
Other Financial Liabilities | (29,681,420 | ) | 12,128,517 | (2,682,801 | ) | |||||||||||
Provisions | 517,438 | 849,252 | 289,278 | |||||||||||||
OtherNon-financial Liabilities | (805,307 | ) | (15,019,196 | ) | 4,088,838 | |||||||||||
Income Tax Collections/Payments | (10,102,682 | ) | (11,415,284 | ) | (10,158,748 | ) | ||||||||||
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NET CASH (USED IN)/GENERATED BY OPERATING ACTIVITIES (A) | (10,568,935 | ) | 121,928,013 | (13,809,708 | ) | |||||||||||
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CASH FLOWS FROM INVESTMENT ACTIVITIES | ||||||||||||||||
Payments: | ||||||||||||||||
Purchase of PP&E, Intangible Assets and Other Assets | (7,897,101) | (5,673,271 | ) | (5,014,929 | ) | |||||||||||
Purchase ofNon-controlling Interests | 50 | — | — | (2,249,045 | ) | |||||||||||
Collections: | ||||||||||||||||
Sale of PP&E, Intangible Assets and Other Assets | 2,679,732 | 156,424 | 1,309,202 | |||||||||||||
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NET CASH USED IN INVESTMENT ACTIVITIES (B) | (5,217,369 | ) | (5,516,847 | ) | (5,954,772 | ) | ||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Payments: | ||||||||||||||||
Unsubordinated Debt Securities | (16,883,724 | ) | — | (2,412,654 | ) | |||||||||||
Subordinated Debt Securities | — | — | (557,008 | ) | ||||||||||||
Loans from Local Financial Institutions | (7,190,606 | ) | — | (1,691,806 | ) | |||||||||||
Dividends | 42 | (2,660,800 | ) | (2,636,131 | ) | (859,184 | ) | |||||||||
Leases payment | (1,000,344 | ) | — | — | ||||||||||||
Collections: | ||||||||||||||||
Unsubordinated Debt Securities | — | 14,928,649 | — | |||||||||||||
Loans from Local Financial Institutions | — | 12,041,577 | — | |||||||||||||
Subordinated Debt Securities | 473,057 | 4,060,434 | — | |||||||||||||
Capital increase | 50 | 132,203 | — | 26,125,279 | ||||||||||||
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NET CASH (USED IN)/GENERATED BY FINANCING ACTIVITIES (C) | (27,130,214 | ) | 28,394,529 | 20,604,627 | ||||||||||||
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EXCHANGE INCOME ON CASH AND CASH EQUIVALENTS (D) | 51,075,864 | 69,162,423 | 10,970,172 | |||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C+D) | 8,159,346 | 213,968,118 | 11,810,319 | |||||||||||||
MONETARY LOSS RELATED TO CASH AND CASH EQUIVALENTS | (123,499,266 | ) | (69,503,742 | ) | (29,777,542 | ) | ||||||||||
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 5 | 347,458,867 | 202,994,491 | 220,961,714 | ||||||||||||
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CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 5 | 232,118,947 | 347,458,867 | 202,994,491 | ||||||||||||
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The accompanying Notes and Schedules are an integral part of these consolidated financial statements.
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR COMMENCED JANUARY 1, 2019 AND ENDED DECEMBER 31, 2019, PRESENTED IN COMPARATIVE FORMAT
Figures Stated in Thousands of Pesos (Ps.) and Thousands of U.S. Dollars (USD), Except as Otherwise Stated
NOTE 1. ACCOUNTING POLICIES AND BASIS FOR PREPARATION
Grupo Financiero Galicia S.A. (hereinafter, “the Company”, and jointly with its subsidiaries, “the Group”) is a financial services holding company incorporated in September 14, 1999 under the laws of Argentina. The Company’s main asset is its interest in Banco de Galicia y Buenos Aires S.A.U. (hereinafter, “Banco Galicia” or “the Bank”) which is a private bank offering a wide range of financial services, both to individuals and companies. Likewise, the Company has a controlling interest in Tarjetas Regionales S.A. which maintains investments related to the issuance of credit cards and supplementary services; Sudamericana Holding S.A., a company engaged in the insurance business; Galicia Administradora de Fondos S.A., a mutual fund management company; Galicia Warrants S.A., a warrant issuing company; and IGAM LLC, a company engaged in assets management.
These consolidated financial statements were approved and authorized for publication through Minutes of Board of Directors’ Meeting No. 608 dated April 28, 2020.
| 1.1. |
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These consolidated financial statements have been prepared in accordance and in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC). All the IFRSs in force as of the date of preparation of these consolidated financial statements have been applied.
In Argentina, the Group is subject to the provisions of Article 2, Section I, Chapter I of Title IV: Periodic Information Regime of the National Securities Commission (CNV) regulations and it is required to present its financial statements in accordance with the valuation and disclosure criteria set forth by the Argentine Central Bank.
The Argentine Central Bank, through Communications “A” 5541 and its amendments, established a convergence plan towards the adoption of IFRS as issued by the IASB, and the interpretations issued by the IFRIC, for the entities under its supervision, effective for fiscal years commencing January 1, 2018 with the exception of the application of item 5.5 (impairment) of IFRS 9 “Financial Instruments” and IAS 29 “Financial Reporting in Hyperinflationary Economies”, both temporarily waived until January 1, 2020.
Additionally, the Superintendence of Financial Institutions has established that the shareholding in Prisma Medios de Pago SA, which is recognized at fair value under IFRS cannot exceed the proportion received in cash at the time of its sale. The Group has presented its local financial statements under these rules on February 20, 2020. Shareholders’ equity under the rules of the Argentine Central Bank is presented in Note 53.
It has been concluded that these consolidated financial statements fairly present the Group’s financial position, financial performance and cash flows, in accordance with IFRS.
The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Groups´ accounting policies.
The areas involving a greater degree of judgment or complexity, or areas where assumptions and estimates are significant for the consolidated financial statements are disclosed in Note 2.
| (a) | Going Concern |
As of the date of these consolidated financial statements, there are no uncertainties related to events or conditions that may cast significant doubt upon the Group´s ability to continue as a going concern.
| (b) | Measurement Unit |
IAS 29 “Financial Reporting in Hyperinflationary Economies” requires that the financial statements of an entity whose functional currency is that of a hyperinflationary economy be restated in terms of the current measurement unit as of the reportingperiod-end, irrespective of whether they are based on the historical cost or the current cost method. Accordingly, in general terms,non-monetary items should be adjusted for inflation occurring since the acquisition date or since the revaluation date, as the case may be. These requirements are also applicable to the comparative information reported in the financial statements. According to IAS 29, monetary assets and liabilities are not required to be restated, for they are stated in the measurement unit as of the end of the reporting period. Assets and liabilities subject to adjustments based on specific agreements will be adjusted on the basis of such agreements.Non-monetary items measured at their fair values at the end of the reporting period, such as net realizable value or otherwise, will not be restated. The othernon-monetary assets and liabilities will be restated by applying a general price index. The income (loss) from the net monetary position will be charged to net income for the reporting period in a separate item.
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In order to conclude whether a given economy qualifies as hyperinflationary pursuant to the terms of IAS 29, the standard sets forth certain factors that should be considered, including a three-year cumulative inflation rate reaching or exceeding 100%.
In this regard, the Argentine Federation of Professional Councils in Economic Sciences (FACPCE) through Resolution J.G.539/18 and the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires (CPCECABA) through Resolution C.D. 107/2018 have pointed out that, effective for fiscal years ending on July 1, 2018 and thereafter, entities reporting under IFRS will be required to apply IAS 29 since the conditions for such application have been satisfied. In addition, Law No. 27468 enacted in November 2018 abrogated the prohibition to present the financial statements adjusted for inflation, as established by Decree 664/2003, entrusting each regulatory agency with its application. In this regard, on December 26, 2018, the CNV issued General Resolution No. 777/2018 authorizing the issuing entities to present accounting information in constant currency for annual financial statements for interim and special periods ending on December 31, 2018 and thereafter, except for financial institutions and insurance companies.
On February 22, 2019, through Communiqué “A” 6651, the Argentine Central Bank established that entities subject to its control shall restate the financial statements into constant currency for the fiscal years commencing January 1, 2020. However, the Group has applied IAS 29 in these consolidated financial statements in order for them to comply with IFRS.
| (c) | New Accounting Standards |
IFRS 16 “Leases”: In January 2016, the IASB issued IFRS 16 “Leases” that establishes the new principles for recognizing, measuring, presenting and disclosing information on leases. Under IFRS 16, a contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time, in exchange for a consideration. In that case, it requires the lessee to recognize a liability for the present value of the agreed future payments, discounted at the implicit interest rate of the contract or if that rate cannot be readily determined, at the lessee’s incremental borrowing rate and an asset for the right of use of the underlying asset. This criterion must be applied to all lease contracts, and its application is optional for agreements whose terms do not exceed 12 months and do not contain a bargain purchase option, and where the leased assets are considered of low value. For the accounting of the lessors, the classification established in IAS 17 in Operating and Finance leases is maintained. This standard is effective for annual periods commencing on or after January 1, 2019.
The Group had to change its accounting policies as a consequence of adopting IFRS 16. The Group decided to adopt the new standards retrospectively from 1 January 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The cumulative effect of the initial application of the new standard are therefore recognized as of January 1, 2019 (See Note 16).
IFRIC 23 “Uncertainty over Income Tax Treatments”: this interpretation clarifies how to recognize, and measure deferred and current income tax assets and liabilities where there is uncertainty over the tax treatment. This standard was published in June 2017 and applies to financial reporting periods commencing as of January 1, 2019. Its application did not have any significant impact on the Group.
Prepayments features with negative compensation – Amendments to IFRS 9:this amendment to IFRS 9 enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. These assets, which include some loans and debt securities, would otherwise have to be measured at fair value through profit or loss. To qualify for amortized cost measurement, the negative compensation must be a “reasonable compensation for early termination of the contract” and the asset must be held within “held to collect”. This standard is effective for annual periods commencing on or after January 1, 2019. Its application did not have any significant impact on the Group.
Long-term interests in Associates and Joint Ventures – Amendments to IAS 28: The amendments clarify accounting for long-term interests in associates and joint ventures for which the equity accounting does not apply. The entities must account for such interests under IFRS 9 “Financial Instruments” before applying the loss allocation and impairment requirements in IAS 28 “Investments in associates and joint ventures”. This standard is effective for financial reporting periods commencing on or after January 1, 2019. Its application did not have any significant impact on the Group.
Annual Improvements to IFRS 2015–2017 Cycle:The following improvements were finalized in December 2017, being effective for financial reporting periods commencing on or after January 1, 2019.
IFRS 3: It was clarified that obtaining control of a business that is a joint operation is a business combination achieved in stages.
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
IFRS 11: It was clarified that the party obtaining joint control of a business that is a joint operation should not remeasure its previously held interest in the joint operation.
IAS 12: It was clarified that income tax consequences of dividends on financial instruments classified as equity should be recognized according to where the past transactions or events that generated distributable profits were recognized.
IAS 23: It was clarified that, if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use or sale, it becomes part of general borrowings.
The application of this standard did not have any significant impact.
| (d) | Changes in Accounting Policies |
As indicated in Note 1.1. (c), the Group has adopted IFRS 16 “Leases” retrospectively from January 1, 2019. The new accounting policies are disclosed in Note 1.12.
Following the adoption of IFRS 16, the Group recognized lease liabilities related to leases that had previously been classified as operating leases under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental borrowing rate applied to lease liabilities on January 1, 2019 was 37.94% for contracts in Argentine pesos and 8.60% for contracts in foreign currency.
| (i) | Practical expedients applied |
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
the use of a single discount rate, in a lease portfolio with reasonably similar characteristics;
relying on previous assessments on whether leases are onerous as an alternative to performing, an impairment test: the Group did not have any onerous contracts as of January 1, 2019;
accounting for operating leases with a remaining lease term of less than 12 months and that do not include a bargain purchase option as of January 1, 2019, as short-term leases;
excluding initial direct costs for the measurement of theright-of-use asset as of the date of initial application; and
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its the assessment made under IAS 17 and IFRIC 4 “Determining Whether an Arrangement Contains a Lease”.
| (ii) | Measurement of
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| 01.01.19 | ||||
Operating leases commitments disclosed as of December 31, 2018 | 6,781,048 | |||
Discounted using the lessee’s incremental borrowing rate as of the date of initial application | 4,461,031 | |||
Lease Liabilities recognized as of January 1, 2019 | 4,461,031 | |||
| (iii) | Measurement ofright-of-use assets |
Right-of-use assets were measured for an amount equal to lease liabilities.
| (iv) | Adjustments recognized in the Statement of |
The change in the accounting policy affected the following items in the Statement of Financial Position as of January 1, 2019:
Right-of-use Assets (include under Property, Plant & Equipment)—Increase of Ps.4,461,031.
Deferred Tax Assets – Increase of Ps.1,338,310.
Lease Liabilities – Increase of Ps.4,461,031.
| (e) |
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The new standards, amendments and interpretations published are detailed below; however, they have not yet come into force for financial reporting periods commenced January 1, 2019 and have not been early adopted.
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1.16.Assets Held for Sale and Discontinued Operations
1.16.1.Assets Held for Sale
The assets, or group of assets, classified as held for sale pursuant to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations,” are disclosed separately from the other assets.
Non-current assets or disposal groups (including the loss of control over a subsidiary) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. In order for an asset to be classified as held for sale, it must meet the following conditions:
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F-19
GRUPO FINANCIERO GALICIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
IFRS 17 “Insurance Contracts”: On May 18, 2017, the IASB issued IFRS 17 “Insurance Contracts,” establishing a comprehensive accounting framework based on measurement and disclosure principles for insurance contracts. The new standard supersedes IFRS 4 “Insurance Contracts,” and requires entities to measure an insurance contract at initial recognition at the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment fornon-financial risk) and the contractual service margin. The fulfilment cash flows are remeasured on a current basis each reporting period. The unearned profit (contractual service margin) is recognized over the coverage period. Entities are required to apply IFRS 17 for fiscal years commencing on or after January 1, 2021. The Group is evaluating the impact of adopting this new standard.
Definition of “Material”—Amendments to IAS 1 and IAS 8: The IASB has amended IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates, and Errors” clarifying when information is material.
In particular, the amendments clarify:
The reference to obscuring information addresses situations where the effect is similar to omitting or misstating such information, and that an entity assesses materiality in the context of the financial statements as a whole; and |
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Assets, or groups of assets, classified as held for sale pursuant to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations,” are measured at the lower of their carrying amount and fair value less costs to sell and are restated in accordance with Note 1.2.b.
the meaning of “primary users of general-purpose Financial Statements” to whom those Financial Statements are addressed, by defining them as “existing and potential investors, lenders and other creditors”, that must rely on general purpose Financial Statements for much of the financial information they need.
This amendment is effective as of January 1, 2020 and is not expected to have any significant impact.
Definition of “Business”—Amendment to IFRS 3: The new definition of Business includes a comprehensive set of activities and assets that can be directed and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities. Yields such as lower costs and other economic benefits are excluded from the above definition.
This amendment is effective as of January 1, 2020 and is not expected to have any significant impact.
Reform to the interest rate benchmark—Amendments to IFRS 9, IAS 39 and IFRS 7: These amendments provide some reliefs regarding the reform to the interest rate benchmark such as LIBOR and other rates offered in the interbank market. Reliefs are related to hedge accounting and to the fact that the mentioned reform should not cause the end of hedge accounting, considering the IFRS currently in force. However, hedge ineffectiveness must continue to be recorded in the Statement of Income. These amendments are effective as of January 1, 2020. These amendments are not expected to have any significant impact.
There are no other IFRS or IFRIC interpretations that are not effective and that are expected to have a significant impact on the Group.
| 1.2. |
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Subsidiaries are those entities, including structured entities, where the Group is in control because (i) it has the power to direct relevant activities of the investee, which significantly affect its returns; (ii) it has exposure, or rights, to variable returns for its interest in the investee; and (iii) it has the ability to use its power over the investee to affect the amount of the investor’s returns. The existence and effect of the substantive rights, including potential voting rights, are considered when evaluating whether the Group has control over another entity. For a right to be substantive, the holder must have the practical ability to exercise it whenever necessary to make decisions on the direction of the relevant activities of the entity. The Group may be in control of an entity even when possessing less than the majority of the voting rights.
Likewise, the protective rights of other investors, such as those related to substantive changes in the activities of the investee or applied only in exceptional circumstances, do not prevent the Group from having control over an investee. The subsidiaries are consolidated from the date the control is transferred to the Group, and they cease to be consolidated as of the date on which the control ceases.
The subsidiaries which have been consolidated in these Consolidated Financial Statements are detailed in Note 15.
For the purpose of consolidating its financial statements, the Group used the subsidiaries’ financial statements for the year ended December 31, 2019. The accounting policies applied by Sudamericana Holding S.A. are established by the National Insurance Superintendency and have been adjusted to those applied by the Group in preparing its consolidated financial statements.
Intercompany transactions, balances and unrealized gains on transactions between Group’s companies were eliminated.
Non-controlling interest in the results and equity of consolidated subsidiaries are shown separately in the consolidated statement of income, consolidated statement of other comprehensive income, consolidated statement of changes in shareholder’s equity and consolidated statement of financial position, respectively.