Banco Bbva Argentina SA (BBAR) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's First Quarter 2021 Results Conference Call. We would like to inform you that this event is being recorded (Operator Instructions)

First of all, let me stress that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2020 filed with the U.S. Securities and Exchange Commission.

Today with us, we have Mr. Ernesto Gallardo, CFO; Mrs. Ines Lanusse, IRO; and Ms. Belén Fourcade, Investor Relations.

Ms. Fourcade, you may begin your conference.

Good morning, everyone, and welcome to BBVA Argentina's first quarter 2021 earnings conference call.

Before we begin our formal remarks, let me remind you that certain statements made during the course of the discussion may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control.

For a description of these risks, please refer to our SEC filings and earnings release, which are available at our Investor Relations website, ir.bbva.com.ar.

Speaking during today's call will be Ines Lanusse and Mr. Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session.

Please note that starting January 1, 2020, as per Central Bank regulation, we have begun reporting results applying hyperinflation accounting, pursuant to IFRS rule IAS 29. For ease of comparability, 2020 figures have been restated to reflect the accumulated effect of inflation adjustment for each period through March 31, 2021.

I would also like to add that following the application of Central Bank's Communication "A" 7211, as of this earnings release, we are again able to present figures of the last 5 quarters expressed in current currency.

Now let me turn the call over to Ines.

Thank you, Belén, and thank all of you for joining us on the first quarter 2021 conference call.

Let me start by commenting that despite some incipient signs of economy recovery, uncertainties remain in regards to the resolution of negotiation of the national battle with the IMF and the economic plans linked to the results of such arrangements. The evolution of the pandemic, the additional measures that may be taken by the government and the next midterm elections further complicate the current situation.

In this context, with silos of the financial sector, it's critical to be able to add equity and safely provide banking products and services to society. BBVA Argentina has proven this adaptive capacity through a modern branch network and an efficient and safe operating scheme from a sanitary point of view, as our retail and wholesale clients continue to adopt the use of digital channels to access to our products and services.

In line with this, the digitalization of our offer has evolved in such way that at the end of March 2021, the penetration of our digital clients reached 73% from 68% in the prior year, while that of mobile clients reached 62% from 56% a year before.

In terms of responsible banking, BBVA Argentina keeps working towards a sustainable model, supporting responsible business actions regarding inclusion, financial education and environmental protection as part of its compromise with the country.

I will now comment on the bank's first quarter 2021 financial results. BBVA Argentina first quarter 2021 net income, including inflation adjustment effects totaled ARS 3.0 billion, growing 821.6% quarter-over-quarter and 50.8% year-over-year.

Quarterly results are mainly explained by: one, an adequate operating cost management; two, the reduction in loan loss allowances; three, the recovery of a provision recorded in 2017 in the frame of the legal action filed by the bank to declare unconstitutionality of the provisions that prevented the application and inflation adjustment for the 2016 fiscal period recorded in the income tax line; and four, the negative impact of inflation during the quarter.

These being said, the 821.6% quarterly variation is mainly affected by; one, the adjustment in the valuation of Prisma introduced retroactively in the fourth quarter 2020 results in the line net income from measurement of financial instruments at fair value through P&L, which were required by the Central Bank, subject to the announcement of the fourth quarter 2020 financial statements; and two, the retroactive application of modifications and exposure of monetary results stated in Communication "A" 7211 for the financial statements ended in December 31, 2020.

Based on the previously described, in the first quarter of 2021, BBVA Argentina presented a positive real return on equity of 10.5% and a real return on assets of 1.6%, proving the bank resilience.

In the quarter, net interest income totaled ARS 21.5 billion, 2.3% lower than the results posted in the fourth quarter 2020 and 8.1% lower than the results posted a year ago.

In the first quarter 2021, the greater interest income does not make up for the increase in interest expenses mainly due to the regulation in active and passive rate to greater expenses generated by time deposits and, to a lesser extent, by UVA linked time deposits driven by a boost in quarterly inflation.

During the first quarter of 2021, interest income totaled ARS 36.7 billion, 1.5% higher quarter-over-quarter and 4.5% above first quarter 2020 interest income. Quarterly increase is mainly explained by a 16.6% increment in interest income from credit cards and a 26.4% growth in income from said UVA adjustment, this last explained by the acceleration of inflation during the first quarter of 2021, boosted by income from public securities linked to such indexes.

The increase was partially offset by a 5.8% fall in income from government securities, as the effective rate from interest gains through Central Bank liquidity bills did not compensate the quarterly inflation rate, additional to a 13.7% fall in income from overdraft.

Interest income from loans and other financing totaled ARS 17.7 billion, growing 0.5% quarter-over-quarter. This is mainly explained by a 16.6% increase in credit cards and a 5.3% increase in pledge loans.

The increment was offset by a fall in other loans by 2.2%, which includes part of the productive investment credit lines implemented by the Central Bank in overdraft by 13.7% and in discounted instruments by 3.8%, the later driven by lower commercial activity.

Interest expenses from time deposits and investment accounts explained 79.2% of total interest expenses versus 78.9% in the previous quarter. Interest from time deposits grew 7.7% quarter-over-quarter and 30.4% year-over-year.

Net fee income as of the first quarter of 2021 totaled ARS 3.4 billion, growing 6.1% quarter-over-quarter and 25.4% year-over-year. In the first quarter of 2021, fee income totaled ARS 7.7 billion, contracting 9.7% quarter-over-quarter and 0.3% year-over-year. The quarterly fall is mainly explained by the income from credit cards, in part due to the seasonal effect and to the implementation of the new reward program.

Lower expenses in the quarter are partially driven by savings in promotions and client acquisition cost compared to what was expended in the fourth quarter of 2020, affected by seasonal factors.

During the first quarter of 2021, personnel benefits and administrative expenses totaled ARS 11.2 billion, increasing 2.0% compared to the fourth quarter 2020 and falling 2.5% compared to the first quarter of 2020. Personnel benefits increased 6.4% quarter-over-quarter and decreased 8% year-over-year. This is partially explained by salary increases arranged through collective bargaining agreements, additional superior remuneration payments.

As of the first quarter of 2021, administrative expenses fell 2.5% quarter-over-quarter and increased 4.1% year-over-year. The quarterly fall is mainly due to savings in armored transportation services, driven by the lower commercial activity.

The accumulated efficiency ratio as of the first quarter of 2021 was 72.5%, above the 56.8% and the 59.3% reported in the fourth quarter of 2020 and the first quarter of 2020, respectively. This increase is especially affected by a fall in financial income and the acceleration of the inflation during the first quarter of 2021.

Excluding inflation adjustment, considering the income from the monetary position lining item, the first quarter 2021 accumulated efficiency ratio would have been 50.1%.

In terms of activity, private sector loans in real terms as of the first quarter of 2021 totaled ARS 296.8 billion, decreasing 9.5% quarter-over-quarter and 7.7% year-over-year.

Loans to the private sector in pesos decreased 10% in the first quarter of 2021 and remained flat in the year with a 0.9% minor increase. Loans to the private sector denominated in foreign currency fell 5.4% quarter-over-quarter and 45.0% year-over-year, mainly driven by the contraction in the bans of loans in foreign currency. These loans measured in U.S. dollars fell 13.5% quarter-over-quarter and 61.4% year-over-year.

The depreciation of the Argentine pesos versus the U.S. dollar was 8.5% quarter-over-quarter and 29.9% year-over-year.

BBVA Argentina consolidated market share on private sector loans as of March 2021 reached 8.23% from 8.35% in the first quarter of 2020. Retail loans fell 5.7% quarter-over-quarter and grew 8.1% year-over-year.

During the quarter, the greatest decline is seen in credit cards with a 7.5% decrease. Commercial loans contracted 14.8% quarter-over-quarter and 24.7% year-over-year, mainly due to a seasonal deceleration of commercial activity. This being said, decline in both retail and commercial portfolios are mainly impacted by the effect of inflation in the first quarter of 2021, which reached 13%.

In nominal terms, the retail portfolio and the total loan portfolio increased 5.0% and 2.2%, respectively, reversing the trend compared to the inflation adjusted figures. On the other hand, also in nominal terms, the commercial portfolio contracted 1.8%, pushed by lower activity.

In the first quarter of 2021, gross loans to deposit ratio was 58.9% from 70.3% a year ago. In the first quarter of 2021, asset quality ratio, or NPL, was 1.72%, while the covenant ratio was 275.22% compared to the 1.40% NPL and to the 311.95% covenant ratio recorded in the fourth quarter of 2020.

The evolution of these ratios reflect: first, an increase in the retail nonperforming portfolio due to deferred credit card payments related to the expiration of COVID-19 measures over these loans, which passed to Stage 3 in January. Second, an improvement in the commercial nonperforming loans in contract to those recorded in the fourth quarter 2020. And third, a decline in write-offs driven from the decrease in retail nonportfolio loans in the prior 6 months, required for nonperforming loans to be written off.

As of the first quarter of 2021, NPL is still positively affected by the temporary flexibility in Central Bank regulations regarding debtor classification during the COVID-19 pandemic, which extends grace periods in 60 days before a loan is classified as nonperforming. And since then, the mandatory reclassification of clients that have an irregular performance with other institutions but are regular performance with the bank.

Cost of risk reached 2.47% lower than the fourth quarter 2020, 4.99%. This is mainly explained by the reduction in loan loss allowances in the first quarter 2021, additional to the contract with the fourth quarter 2020 that included losses for the passing to Stage 3 of a particular company and the change in parameters in impairment models.

In the first quarter of 2021, exposure to the public sector, excluding Central Bank instruments, measured as a percentage of total assets reached 6.4%, above the 5.6% recorded in the previous quarter.

On the funding side, nonfinancial private sector deposits as of the first quarter of 2021 totaled ARS 501.1 billion, decreasing 6% quarter-over-quarter and increasing 8.3% when compared with the first quarter of 2020.

Private nonfinancial sector deposits in pesos totaled ARS 356.4 billion, falling 6.3% compared to the fourth quarter of 2020 and growing 18.8% compared to the first quarter of 2020. The quarterly decline is mainly explained by the fall in side deposits, especially checking account, interest-bearing and noninterest-bearing accounts and saving accounts. This was partially offset by an 8.1% increase in time deposits.

Private nonfinancial sector deposits in foreign currency expressed in pesos fell 5.2% quarter-over-quarter and 11% year-over-year. Measured in U.S. dollars, these deposits fell 13.3% quarter-over-quarter and 37.6% year-over-year.

Variations are mainly affected by the effect of inflation during the first quarter of 2021. In nominal terms, total deposits, site deposits and time deposits grew 6.2%, 19.4% and 0.2%, respectively, reversing the trend in inflation-adjusted figures in certain cases.

As of March 2021, BBVA's transactional deposits, including checking and saving accounts, represented 62.9% of total deposits from 66.6% a quarter ago. BBVA Argentina consolidated market share on private sector deposits as of March 2021 reached 6.90% from 6.80% a year ago.

In terms of capitalization, BBVA Argentina continues to show strong solvency indicators, accounting an excess capital of ARS 69.2 billion, entailing a total regulatory capital ratio of 22.4% and a Tier 1 ratio of 21.7%. The bank is saying is to make the best use of this excess capital.

The bank's liquidity ratio in pesos and dollars remained healthy at 65.8% and 87.7% of total deposits as of March 31, respectively.

Last but not least, on April 20, 2021, the general shareholders' meeting approved the distribution of cash dividends for ARS 7 billion equal to ARS 11.43 per share, which implies a 58% payout ratio. The distribution is subject to Central Bank's prior authorization, which has not been granted yet. As of the date of this release, BBVA Argentina had ARS 21.5 billion accumulated in dividends pending distribution.

This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.

(Operator Instructions) Our first question comes from Gabriel Nóbrega with Citigroup.

So during the first question -- sorry, so during the first quarter, we saw that the NPLs started to deteriorate. I understand that the bank has a soft guidance, so when consuming the excess coverage throughout the year, which we built over 2020. But still, given uncertainties surrounding Argentina, with midterm elections coming up, IMF agreement as well, I just wanted to understand if, at this moment, is there any segment of your loan book that maybe is starting to worry you? Or is everything on a normal pace, and we should continue to see this consumption of coverage over the upcoming quarters? And I'll ask a second question afterwards.

Gabriel, yes, as you mentioned, you saw some peak in the first quarter of the NPL. Basically, as we mentioned in the press release, it's the waivers that were implemented by the COVID measures on the credit card business fell in -- the first one fell in January. So you had some peak in January on the retail portfolio. Then the situation stabilized in February and March.

If we would exclude the Central Bank waivers, our NPL as of March would be 2.5%, that is full IFRS 9. And we are projecting towards the end of the year, assuming the way the full waivers are removed from the NPLs, to reach around 3.62%.

Just to mention, our deferred book is only 11% overbooked. It has been decreasing. It's mainly credit card business, and we are quite comfortable in the way the NPL is performing.

Regarding coverage, basically, you saw a decrease in coverage. Mainly, it's -- that has to do with the increase of the denominator, the NPLs, as I mentioned before, and a reduce in allowances. We are projecting our coverage towards the end of 2021 at around 147%. I think that answers your question, sir.

Yes, Miss. This was very clear. And as for my second question, we saw the reversal of the tax provisions on which you generated in 2016. And so I just wanted to understand if you have already done all of this reversal, are there maybe more tax reversals planned throughout the year? How should we think of your effective tax rate going forward as well?

Okay. That was a particular one. As you know, the bank presented sort of lawsuit to the state for -- and we were obliged by the Central Bank to provision that less payment that we did for the income tax of 2016 that was accounted in 2017. And with a positive effect from the demand, we were able to reverse that provision and impacted in the income line tax. So that's the main effect. It's a onetime effect, so you shouldn't see more of those during the -- during 2000 -- during this year.

It's difficult to predict the income tax. I know it's a difficult line to model. Probably, you should work around at 38%, but a lot of what happens with the income tax line is going to be related if there is changes in the actual regulation.

As you know, today, our income -- our tax is at 30%, and there is a possibility that, that income tax goes to 35%. It Is something that's being discussed in the parliament. So depending mainly on what happens with that, it's going to be, at the end of the day, the income tax, you should calculate for your model.

Next question is from Alonso Garcia with Crédit Suisse.

Moving on, our next question is from Carlos Gomez with HSBC.

I wanted to follow up on the reversal of the tax provision, ARS 1.2 billion. So what is the exact situation of that case? Have you succeeding and that is the reason why you can reverse it? So you will not have to pay those ARS 1.2 billion in the future and whatever resolution there was, that is applied to other fiscal years or to other company. We would like to have a little bit of clarity over there.

And second, on the dividend, if you could repeat what you spent. In the call, so you have available ARS 7 billion, ARS 11.34 per share. Can you repeat how much you have on the balance sheet? Just to clarify, the one that you have approved is not yet on the balance sheet. It's not -- has not come out of equity.

Carlos, let me see if I understood your question correctly. Let me start by the second question on dividends. We still have 2 pending dividends from 2019 that are already on the liability side for ARS 14.5 billion. Those are pending of distribution. And on the April analyst shareholders' meeting of this year, 2020, an extra dividend of ARS 7 billion was declared. And you will see it as of the second quarter getting out of the equity and passing into the liability side. So those are...

Sorry. So to clarify, continue. So right now, ARS 14.5 billion are pending distribution and are not in the equity in your book value. And this new ARS 7 billion are still in your book value, but they will not be after the second quarter.

Correct. In the second quarter, you're already going to see it in the liability side because the dividend has been declared.

Okay. But has it -- it has been declared but it has not been distributed to the shareholders. So shareholders are still entitled to that money once it is distributed.

Correct. Exactly. It has been declared, but we are -- we do need the authorization of the Central bank to be able to distribute, okay?

And regarding your other question on the tax side, as you -- what we did -- the bank did was for the 2016 income tax that we had to pay. The bank decided, because of this complication, the tax that was being paid was confiscatory. The bank decided to pay less, adjusting the amount that had to pay adjusted by inflation. So the Central Bank obliged the bank because when we had to pay that in 2017 or by to do a provision.

So we had a neutral effect for nonpayment because we were going into a lawsuit with the state in 2017. That lawsuit had a positive effect this year in 2021, so we were authorized by the Central Bank to reverse that provision. So that was a onetime effect.

We did the same for the income tax we had to pay for 2017 and 2019 with respective provisions in the following years, but we have no news regarding those -- the legal action continues its course, but it's difficult to predict when exactly we're going to have results on those losses.

Obviously, having a positive effect on the 2016 lawsuit gives us some -- it's good news for us because we had a positive effect, but we need to see what happens with the 2017 and 2019 lawsuits.

But we expect to have a positive outcome from the lawsuit, okay?

Understood. And again, the resolution has been positive towards you. At what level of the court, is this the tax authority? Or the...

It's actually close. It's the final sentence, final decision.

So they cannot appeal.

Yes, exactly. They cannot. They decided to not appeal.

(Operator Instructions) Showing no further questions, this concludes the question-and-answer section. At this time, I would like to turn the floor back over to Mrs. Lanusse for any closing remarks.

Thank you very much for your time. This concludes our call today, and look forward to answer your questions if you have. Thank you.

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

Thank you. Bye.