Banco Bbva Argentina SA (BBAR) 2021 Q4 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 Fourth Quarter and Fiscal Year 2021 Results Conference Call. We would like to inform you that this event is being recorded. (Operator Instructions)

First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2020 filed with the U.S. Securities and Exchange Commission.

Today with us, we have Mr. Ernesto Gallardo, CFO; Mrs. Ines Lanusse, IRO; and Ms. Belen Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.

Good morning, everyone, and welcome to BBVA Argentina's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Before we begin our formal remarks, let me stress that some of the statements made during the course of this conference call may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including factors that may be beyond the company's control.

For a description of these risks, please refer to our SEC filings and earnings release, which are available at our Investor Relations website, ir.bbva.com.ar. Speaking during today's call will be Ines Lanusse and Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session.

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

Now let me turn the call over to Ines.

Thank you, Belen, and thank you all of you for joining us today. The pandemic situation improved during the second half of 2021, which enabled the recovery of the economic activity. This situation has had a positive impact on the financial system as a whole, which holds strong to cope with a challenge that still persist in the short term.

BBVA Argentina has a corporate responsibility with society inherent to the bank's business model, which bolsters inclusion, financial education and support scientific research and culture. The bank works with the highest integrity, long-term vision and best practices, and it is present through the BBVA Group in the main sustainability indexes.

With respect to digitalization, our service offering has evolved in such a way that by December 2021, digital client penetration reached 74% from 72% a year back, while that of mobile clients reached 64% from 60% in the same period.

The response on the side of customers has been satisfactory, and we are convinced this is the path to pursue in the aim of sustaining and expanding our competitive position in the financial system. The bank actively monitors its business, financial conditions and operating results in the aim of keeping a competitive position to face the contextual challenges.

I will now comment on the bank's fourth quarter 2021 and fiscal year 2021 financial results. BBVA Argentina 2021 net income was ARS 21.2 billion, 27.1% higher than the ARS 16.6 billion reported in 2020. This implied an accumulate annualized ROE of 13.5% and an ROA of 2% in 2021 compared to the accumulated annualized ROE of 10.9% and an ROA of 1.7% in 2020.

The increment in the bank's operating income is mainly explained by, one, an increase in interest and fee income, the latter mostly enhanced by the implementation of a new reward program with credit card benefits which meant savings in fee expenses; two, lower net loss from write-down of assets at amortized cost and fair value through OCI; and three, lower loan loss allowances mainly due to a good evolution in the behavior of our loan portfolio.

It should be noted that in 2020 results were affected by the partial collection of payments and voluntary swap of the National Treasury U.S. dollar linked notes, LELINK, which had been restructured in August 28, 2019, and that generated a loss in the line net loss from write-down of assets at amortized cost and fair value through OCI.

Another factor to be highlighted is the income tax line. Accumulated income tax during 2021 recorded a gain of ARS 80 million. The first and second quarter of 2021 were affected by the reversal of a provision connected to the repayment of income tax inflation adjustments for 2016, 2017 and 2018 fiscal years. Excluding the effect of actions of the declaratory judgment during the year, the effective tax rate would have been 30% for 2021 compared to an effective tax rate of 43% in 2020.

The accumulated net income for 2021, net of the effect of actions of declaratory judgment on the tax line would have been ARS 15.7 billion, decreasing 5.6% versus the accumulated net income for 2020. This exclusion would have meant an accumulated ROE of 10.2% and an accumulated ROA of 1.5%.

Additional to these factors, net income was affected by the income from the monetary position in a context of higher inflation. BBVA Argentina fourth quarter 2021 net income was ARS 4.8 billion, increasing 27.8% quarter-over-quarter. This implied a quarterly ROE of 11.8% and a quarterly ROA of 1.8%.

Quarterly results are mainly explained by, one, lower loan allowances, especially due to a satisfactory behavior of the loan portfolio; two, a greater fall in interest expenses; and three, lower administrative expenses. The increase in the result is offset by, one, lower net fee income due to higher activity; two, higher expenses in other operating expenses line item due to the recording of a new provision for reorganization charges; and three, a higher loss from the net monetary position.

Turning into the P&L lines. Net interest income for the fourth quarter of 2021 was ARS 33.6 billion, increasing 4.3% quarter-over-quarter and 13.9% year-over-year. In the fourth quarter of 2021, interest income decreased less than interest expenses mainly due to, one, higher income from interest from loans and other financing; two, increases in income from CER/UVA clause adjustments; and three, an improvement in the funding mix.

In the fourth quarter of 2021, interest income totaled ARS 55.9 billion, falling 2.5% compared to the third quarter of 2021 and increasing 15.7% compared to the fourth quarter of 2020. Quarterly decrease is mainly driven by lower income from premium or reverse repo transactions, especially due to a lower position in this instrument as a result of higher activity. This fall was partially offset by a 4.7% increase in CER/UVA clause adjustment, mostly on income from government securities linked to such indexes, and a 4.5% increase in interest from loans and other financing.

Interest expenses totaled ARS 22.3 billion, denoting an 11.3% decrease quarter-over-quarter and an 18.4% increase year-over-year. Quarterly decrease is described by lower checking account expenses partially offset by higher expenses by interfinancial loans received by the bank’s subsidiaries.

Interest from time deposits and investment accounts explain 76.6% of interest expenses versus 71.5% the previous quarter. Net fee income as of the fourth quarter 2021 totaled ARS 5.8 billion, falling 14.5% quarter-over-quarter and increasing 37.9% year-over-year. In the fourth quarter of 2021, fee income totaled ARS 11.6 billion, growing 1.6% quarter-over-quarter and 1.8% year-over-year. The quarterly growth is mainly explained by an increase in income from credit cards due to higher activity and those linked to loans.

Regarding fee expenses, these totaled ARS 5.7 billion, growing 25.6% quarter-over-quarter and falling 19.6% year-over-year. Higher expenses in the quarter are partially explained by higher expenditures linked to an increase in marketing actions, higher consumption and a strategy of payroll business acquisition.

During the fourth quarter of 2021, personnel benefits and administrative expenses totaled ARS 16.2 billion, falling 8.9% compared to the third quarter of 2021 and growing 11% compared to the fourth quarter of 2020.

The accumulated efficiency ratio as of the fourth quarter of 2021 was 69.1%, improving compared to the 69.7% and deteriorating versus the 56.8% reported in the third quarter of 2021 and in the fourth quarter of 2020, respectively. The quarterly improvement is explained by a higher percentage increase in the denominator than the numerator, which has been positively affected by an improvement in net fee income and net interest income.

Excluding inflation adjustments considered in the income from the monetary position line item, the fourth quarter 2021 accumulated efficiency ratio would have been 49.4%, marginally improving compared to the 49.7% of the third quarter of 2021 and deteriorating compared to the 45.1% in the fourth quarter of 2020.

In terms of activity, private sector loans as of the fourth quarter of 2021 totaled ARS 388.4 billion, increasing 3.7% quarter-over-quarter and falling 11.1% year-over-year. Loans to the private sector in pesos increased 6.8% in the fourth quarter of 2021 and decreased 6.5% year-over-year. During the quarter, growth is especially driven by a 23.6% increase in other loans, a 19.9% increase in discounted instruments and a 3.2% increase in credit cards, the latter primarily explained by our Ahora 12 programs.

Loans to the private sector denominated in foreign currency fell 29.2% quarter-over-quarter and 51.8% year-over-year. Quarterly decrease is mainly explained by a 24.8% fall in prefinancing and financing of exports and 100% fall in discounted instruments and a 17.7% fall in other loans. All the aforementioned indicates a lack of demand of loans in foreign currency.

In real terms, retail loans have increased 2.2% quarter-over-quarter and fallen 7.9% year-over-year. During the quarter, the greater increase are seen in consumer loans with a 4.1% increment, followed by a 3.1% growth in credit cards. Commercial loans grew 6.1% quarter-over-quarter and contracted 16.2% year-over-year both in real terms. Growth in commercial loans in the quarter was primarily motivated by marketing campaigns during the fourth quarter of 2021.

Loan portfolios are mainly impacted by the effect of inflation during the fourth quarter of 2021 which reached 10.2%. In nominal terms, the retail, commercial and total loan portfolio all increased 12.6%, 17% and 14.3%, respectively, during the quarter, well beyond real term growth.

BBVA Argentina consolidated market share of private sector loans reached 8.05% as of the fourth quarter of 2021 from 8.49% a year ago. As of the fourth quarter of 2021, the total loans and other financing over deposit ratio was 55.4% above the 54.5% recorded in the third quarter of 2021 and below the 61.2% in the fourth quarter of 2020.

In the fourth quarter of 2021, asset quality ratio was 1.87% compared to the 2.54% recorded in the third quarter of 2021. The decrease is mainly explained by, one, a satisfactory behavior of the loan portfolio; two, the write-off of nonperforming loans mainly retail; and three, an important increase in the total loan portfolio.

The coverage ratio was 181.89% in the fourth quarter of 2021 versus the 181.75% recorded in the third quarter of 2021. The change in the ratio reflects a similar variation in allowances mainly due to the update and improvement of the IFRS 9 impairment loss model parameters with most impact on the retail portfolio and the total nonperforming loan portfolio.

Cost of risk reached 0.46% as of the fourth quarter of 2021, lower than the third quarter 2021’s 2.80%. This is mainly explained by the reduction in loan loss allowances as a result of the annual update of IFRS 9 impairment loss model parameters and an improvement in the sovereign rating for the commercial portfolio, upgrading the commercial loans portfolio rating. This was offset by the negative effect of the new default definition implemented in November 2021.

Exposure to the public sector, excluding Central Bank instruments, in the fourth quarter of 2021 represented 8% of total assets, above the 6.9% in the third quarter of 2021 and the 5.6% in the fourth quarter of 2020. On the funding side, as of the fourth quarter of 2021, total deposits reached ARS 708.3 billion, growing 1.9% quarter-over-quarter and falling 1.9% year-over-year.

Private nonfinancial sector deposits in the fourth quarter of 2021 totaled ARS 394.8 billion (sic) [ARS 694.85 billion], increasing 1.6% quarter-over-quarter and falling 2.4% year-over-year. Private nonfinancial sector deposits in pesos totaled ARS 531.9 billion, increasing 6.1% compared to the third quarter of 2021 and 4.7% compared to the fourth quarter of 2020. The quarterly growth is mainly explained by the increase in sight deposits, especially checking accounts, noninterest-bearing, and saving accounts. This was partially offset by a 7.8% decrease in time deposits.

Private nonfinancial sector deposits in foreign currency expressed in pesos fell 10.6% quarter-over-quarter and 20% year-over-year. Measured in U.S. dollars, these deposits fell 5.3% quarter-over-quarter and 1.2% year-over-year. As of the fourth quarter of 2021, the bank's transactional deposits, checking accounts and savings accounts, represent 65.6% of total nonfinancial private deposits versus 63% in the third quarter of 2021. The bank's consolidated market share of private deposits reached 6.95% as of the fourth quarter of 2021 from 7.13% a year ago.

In terms of capitalization, BBVA Argentina continues to show strong solvency indicators as of the fourth quarter of 2021. Capital ratio reached 20.8% lower than the third quarter 2021 23.5%, mostly due to the announcement of dividend distribution on November 3, 2021, for ARS 6.5 billion. Tier 1 ratio was 20.3% and capital excess over regulatory requirement was ARS 88.5 billion or 154.5%.

It is worth mentioning that since 2020, the bank’s shareholders’ meeting have announced dividends for a total of ARS 28 billion, which remain pending of distribution given that the Central Bank started a suspension in the distribution of results of financial institutions until December 31, 2021. Now that the suspension has been lifted, the bank will proceed to work on the authorization request to the regulator once its 2021 results are approved by the shareholders’ meeting. The bank's liquidity ratio in pesos and dollars remained healthy at 72% and 92.9% of total deposits as of December 31, respectively. This concludes our prepared remarks. We will now take your questions.

Operator, please open the line for questions.

(Operator Instructions) Our first question is from Carlos Gomez with HSBC.

First of all, congratulations on your 2021 results and in particular on your victory in the tax front. I have 2 questions. One is, in general, what type of growth you expect for this year and next year, I realize there is a lot of uncertainty and you still have to see the economic plan that has been [connected] to the IMF.

But I mean you must have a budget and you must have some ideas. What is it that you expect that you will be able to get this year in terms of volumes and in terms of returns. That will be my first question.

Carlos, this is Ines speaking. Yes, as you mentioned, there are still a lot of uncertainty in Argentina, but we have some figures that we can share with you. The loan book, as you can see, in real terms, ended decreasing 11% in the year. But for -- mainly driven by [U.S. dollar] now as there’s lack of demand for that type of loans.

But for 2022, we are seeing real growth around 5%. We are seeing our system contracting around 11% in real terms. Just to mention, we are projecting inflation for 2022 around 55%, that's for private loans. Regarding private deposits, the year 2021 ended with a contraction of 2% mainly also driven by U.S. dollars deposits. And for 2022, we are expecting there a contraction around 3%, but the system will even contract more around 7%, all those figures in real terms.

So again to clarify, do you expect that the system will expand loans -- sorry, will contract loans by 11% real terms in 2022 or that was the figure for 2021?

Yes, 2022. 2022, the system would be contracting 11% in real terms, and we should be growing around 5% in real terms. So we should be gaining some market share in deposits…

That's a lot of difference, right? That's almost a 15% difference. Why do you expect to do so much [within the] system?

Mainly because we have been in 2021 not that active, as you can see in the fourth quarter, we were -- presented a lot of marketing solutions to attract more customers. We have grown in a number of customers. So we believe there could be some more demand on [semi] particularly that we are trying to tackle and bring more customers into the bank. So -- and also from the side of individuals, we can see some more demand.

Does that answer your question? You can see that we have…

Yes. In terms of long term...

Yes. We have expanded more in acquisition in the fourth quarter. We have been quite stable in the first 3 quarters, and that reflects in the amount of customers that we have increased particularly in SMEs.

Okay. So you expect to grow more -- fair enough. And in terms of profitability for the bank.

Profitability, we presented ROE -- positive ROEs. If you exclude the [semi U.S.], the ROE would be around 10.2% compared to the 13.5% that was presented. And an ROA we presented of 2% without declaratory actions would have been 1.5%. For the following year, we are seeing stable figure slightly lower probably because we are seeing inflation a little bit higher. And again, we need to see how also the cost of funds keeps evolving.

We have improved our mix in the fourth quarter. We need to see what happens for 2022. On the income side of interest, there, we should see a better performance mainly because the monetary policy rates have increased. But basically, stable or a bit lower probably.

So again, because rates are going to be higher, shouldn't that in principle improve your margins and improve your ROE?

Yes, it could increase but we are going to have more inflation, and we're going to spend a little bit more in acquisition costs. [So in other] 2021, the fee line evolves very well mainly because we spend it less. We have less income expenses. And that started to increase in the fourth quarter because we're being more active in trying to attract new customers.

Very good. And if I can ask another question, I don't think there are so many -- on the dividends. So we understand that you have been allowed to pay dividends, but in a very particular fashion, which is this 12 installment that the Central Bank has allowed. Is that subject to change? And would you be willing to pay in such schedule? Or you are trying to negotiate something different with the Central Bank?

And second, what is eligible to be distributed, given that you have already declared dividends for the last 2 years that have not been distributed yet?

Yes, we have already declared ARS 28 billion that are already in the liability side. That's why also our capital ratio has decreased. Being that said, we are going to -- the organization says that the results for 2021 needs to be approved by the annual shareholders’ meeting that is going to be held on April 29. Last night was the relevant event was released.

We're going to present -- after those results have been approved, we're going to present our proposal to the Central Bank. We believe we will be able to distribute around ARS 13 billion in the 12 installment as the recommendation set, but again, that needs to be approved by the Central Bank, once that 2021 results have been approved by the annual shareholders' meeting. We are not projecting extra dividends to be declared in 2022 for the time being.

So let me get this straight. So you think that of the 28 billion that you already have declared 13 billion, 1-3, would be distributable.

Exactly.

Okay. And the other 15 million would not be distributable this year, but probably will be distributable in the future.

We need to see how the recommendation evolves. It's very difficult to say what probably because some organizations has been changed. We need to see what happens and it’ll have to be with the macroeconomic situation and the IMF and many things happen, we need to see what happens in that front.

Now -- and you -- and again, if I understand correctly, your intention is not to declare additional dividends for now until the other ones are paid? Or you would declare dividends on the 2021 earnings?

We need to see again what happens in 2022 and how the macroeconomic scenario will.

Okay. So that's a decision you could do later in the year?

Yes. We need to see, yes, it could be a possibility, yes. I mean today, we are okay with 30 billion that we expect that we will be able to distribute during 2022.

13, 1-3, not 30, right? 13, 1-3.

Yes, 1-3.

Okay. Now -- okay. So do you need to call for another AGM to declare more dividends in the future or you can do it or the Board can do it without shareholders’ approval?

[We need another] annual shareholders meeting of April 29, or we should call to an extraordinary shareholder meeting as we did 2 in 2020 and 2 in 2019.

Okay. And then in terms of the timing, as you said, you have the possibility of paying over 12 -- in 12 installments. That seems logistically complicated, but you are willing to go through to that particular process or you have hopes that it could be changed in the future?

All right. We have the annual shareholders meeting in April 29. We still have 2 months to go, and then we need to present the option -- the proposal to the Central Bank, which needs to be approved. The time frame will depend a lot on how long the Central Bank takes to approve our proposal.

There's no specific amount of time for the Central Bank to answer our request to pay the dividends.

Okay. No, no, I understand. So the BCRA can respond to your request at any point in time and it can take long. But my question is specifically whether you would be willing to make 12 small payments over the year? Or do you think that it can be changed?

We don't know if this is going to be changed in the future. To be honest, I don't know. For the time being, what we know is that we have to pay, let's say, in 12 installments. And we will do as soon as we have the authorization for the Central Bank.

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

Thank you very much for your time and let us now if you have further questions. Have a good day.

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