Banco Bbva Argentina SA (BBAR) 2022 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 2022 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 call -- 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 2021 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 First Quarter 2022 Earnings Conference Call. Today's webinar will be supported by a slide presentation available on our Investor Relations website on the Financial Information section.

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 recent comparability, 2021 and 2022 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through March 31, 2022.

Now let me turn the call over to Ines.

Thank you, Belen, and thank you all of you for joining us today. The COVID-19 pandemic situation continued to improve during the first quarter of 2022 in spite of the Omicron variant that took place in January. This has allowed the continuity of the economic recovery, although within a context of (inaudible) great talent challenges with a sustained high inflation and a (inaudible) foreign exchange rate despite having settled an agreement with the IMF in March 2022.

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

Moving into business dynamics. As you can see on Slide 3 of the webcast presentation, our service offering has evolved in such a way that by the end of March 2022, digital client penetration reached 62%, remaining stable compared to a year back while that of mobile clients reached 54% from 52% in the same period of last year. The response of the side of customers has been satisfactory, and we are convinced this is a path to pursue in the aim of sustaining and expanding our competitive position in the financial system.

Retail digital sales have increased from 79% to 82% of units and slightly increased from 52% to 53% measured as a percentage of sales. New customer acquisition to digital panels increased to 66% in the fourth quarter of 2022 from 64% in the first quarter of 2021. The bank actively monitors its business, financial conditions and operating results in the aim of keeping a competitive position to face contextual challenge.

Moving to Slide 4. I will now comment on the bank's first quarter 2022 financial results. BBVA Argentina third quarter 2022 net income was ARS 4 billion, decreasing 27% quarter-over-quarter. This implied a quarterly ROE of 9% and a quarterly ROA of 1.4%.

Quarterly operating results are mainly explained by: one, a greater interest income; two, a higher income related to the sale of the remaining participation of the bank in Prisma Medios de Pago; and third, lower operating expenses. These effects were offset by an increase in loan loss allowances would return to average value, considering the particularly positive impact that took place in the fourth quarter of 2021. As of March 8, 2020, the transfer of the whole remaining stock participation of the bank in Prisma Medios de Pago (inaudible) was completed. The improvement in net income from measurement of financial improvements at fair value through P&L, adding other operating income was mainly explained by this transaction. We generated a total benefit before taxes of ARS 3.5 billion. A marginal positive effect is also seen in the line of foreign exchange and gold gains.

Net income for the period is negatively affected by a higher income from net monetary position even the quarterly inflation in the first quarter of 2022 was 16.1% compared to 10.2% in the previous quarter. Excluding the effect of the sale of Prisma net income in the first quarter of 2022 would have been ARS 1.9 billion, 66% lower than the fourth quarter of 2021 and 59.1% lower than the first quarter of 2021. This would have implied a quarterly ROE of 4.4% and an ROA of 0.7%.

Turning into the P&L lines in Slide 5 net interest income from the first quarter of 2022 was ARS 39.2 billion, increasing 0.6% quarter-over-quarter and 17.4% year-over-year. In the first quarter of 2022, interest income decreased less than interest expenses mainly due to: one, higher income from interest from loans and other financing; and two, increases in income from CER/UVA clause adjustment. Interest income increased 6.4% compared to the fourth quarter of 2021, mainly driven by higher income from government securities, especially LELIQ and an increase in CER/UVA clause adjustment, mostly on income from government securities linked to SAT indexes.

Income from credit cards also stands out, although to a lower extent. All these was offset by lower income on premium or reverse repo transaction considering 7-day repos were gradually removed from the market by the Central Bank. Interest expenses increased 15% quarter-over-quarter. Quarterly increase is described by higher time deposits and checking account expenses together with higher CER/UVA adjustment expenses, partially offset by lower expenses by interfinancial loans received by the bank subsidiaries.

Interest from time deposits and investment accounts explain 73% of interest expenses versus 76.6% the previous quarter. Net fee income as of the first quarter of 2022 totaled ARS 6.6 billion, falling 1.9% quarter-over-quarter and increasing 27.5% year-over-year. Fee income fell 3.5% quarter-over-quarter, mainly explained by a decline in income from credit cards, especially due to the contrast against the fourth quarter of 2021 and a seasonal year-end consumption.

Regarding fee expenses, this contracted 5.2% quarter-over-quarter, partially explained by lower expenditures linked to the strategy of favorable business acquisitions and expenses on credit and debit cards.

On the first quarter of 2022, loan loss allowances increased 340.6% quarter-over-quarter and then 23.6% year-over-year, returning to average values considering the particularity, positive impact that took late in the fourth quarter of 2021 and having a particularly good portfolio behavior on the commercial side.

During the first quarter of 2022, total operating expenses were ARS 28 billion, increasing 3.5% quarter-over-quarter and falling 6.8% year-over-year, 70% were personnel benefits and administrative expenses versus 65% in the fourth quarter of 2021. Personnel benefits increased 1.2% quarter-over-quarter partially explained by the collective wage agreement reached with the unions, which established a fix some increase for the month of January, February and March.

Administrative expenses decreased 3.9% quarter-over-quarter, partially explained by a 43.6% fall in the outsource administrative expenses line item and a 24.4% decrease in other administrative expenses. The accumulated efficiency ratio as of the first quarter of 2022 was 72.2%, deteriorating compared to the 69.1% and a marginal improvement versus the 72.5% reported in the first quarter of 2021 -- and in the first quarter of 2021, respectively.

The quarterly weakening is explained by a higher percentage decrease in income considering monetary position results than the expenses, almost exclusively due to the negative impact of the income from the net monetary position as a result of a greater quarterly inflation compared to the fourth quarter of 2021.

In terms of activity on Slide 6, total consolidated financing to the private sector in the first quarter of 2022 totaled ARS 413.2 billion falling 8.4% in real terms compared to the fourth quarter of 2021 and contracting 10.3% compared to the fourth quarter -- first quarter of 2021. In the quarter, the decrease was mainly driven by a fall in credit card and discounted instruments.

In pesos, loans decreased 8.5% in the first quarter of 2022, especially driven by a fall in credit cards and a fall in discounted instruments. Loans in foreign currency expressed in pesos fell 6.4% quarter-over-quarter mainly explained by the fall in prefinancing and financing of exports and a fall in other loans. All the aforementioned indicates the continued lack of demand of loans in foreign currency. During the quarter, the greatest decrease in retail loans is seen in credit cards, as explained previously, mainly due to the contrast with the seasonality of the fourth quarter 2021. On the commercial book, the greatest decline is seen on discounted instruments and in prefinancing and financing of exports.

Loan portfolio are largely impacted by the effect of inflation during the first quarter of 2022, which reached 16.1%. In nominal terms, the total loan portfolio increased 6.4% during the quarter beyond real-term growth. BBVA Argentina consolidated market share of private sector loans reached 7.89% as of the first quarter of 2022 from 8.23% a year ago.

In the fourth quarter of 2022, asset quality ratio was 1.29% compared to the 1.87% recorded in the fourth quarter of 2021. The decrease is mainly explained by a good loan portfolio behavior, mainly on the commercial side. Both the decline in the commercial nonperforming portfolio and the total portfolio are driven by write-offs in the commercial portfolio. This positively compared to the 4.16% NPL recorded (inaudible) banking system as of February 2022, the latest available information.

The current ratio was 219.75% in the first quarter of 2022 versus 181.90% recorded in the fourth quarter of 2021. The change in this ratio reflects a lower duration in allowances than in the total nonperforming loan portfolio. The latter affected by commercial write-offs.

Cost of risk reached 2.11% as of the first quarter of 2022, above fourth quarter 2021, 0.46%. The exceptional value recorded in the fourth quarter 2021 was 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 commercial portfolio, upgrading the commercial loan portfolio's rating.

On the funding side, as seen on Slide 7, private nonfinancial sector deposits in the first quarter of 2022 totaled ARS 779.6 billion, increasing 3% year-over-quarter and increasing 1.2% year-over-year. Quarterly decrease was mainly explained by sight deposits which fell 9.6%. The bank's consolidated market share of private deposits reached 7.12% as of the first quarter of 2022.

Private nonfinancial sector deposits in pesos decreased 0.6% quarter-over-quarter, mainly affected by a fall in sight deposits, especially saving accounts. This was partially offset by an 11% and a 7.4% increase in client deposit and investment accounts, respectively. Foreign currency deposits expressed in pesos fell 11.7% quarter-over-quarter.

As of the first quarter of 2022, the bank's transactional deposits considered checking accounts and saving accounts represent 60% of total nonfinancing private deposits versus 64.3% in the fourth quarter of 2021. In terms of capitalization, BBVA Argentina continues to show strong solvency indicators in the fourth quarter 2022. Capital ratio reached 23.5% above fourth quarter 2021, 20.8% mostly due to the announcement of dividend distribution in the fourth quarter of 2021 for ARS 6.5 billion.

Exposure to the public sector in the first quarter of 2022, excluding Central Bank instruments, represented 8.9% of total assets above the 8% in the fourth quarter of 2021 and the 6.4% in the first quarter of 2021 and way below the 15.5% reported by the system by February 2022, the latest available information.

It is worth mentioning that on April 29, 2022, the shareholders' meeting approved: one, that the dividend payment to nonresident shareholders shall be made in securities unless they inform the bank their decision to receive them in Argentine peso; and two, pursuant to central bank authorization, the estimation of distributable profit in ARS 13.2 billion. It also delegates on the Board of Directors, the power to determine the conditions of payments of dividends to shareholding, according to Central Bank, prior authorization. The bank's total liquid assets remained healthy at 79.6% of total deposits as of March 31.

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

(Operator Instructions) Our first question today will come from Rodrigo Nistor of (inaudible).

So my question is related to the business dynamics for the following quarters. What are you expecting regarding loan and deposit growth for the year and profitability, and how did the surge in inflation over the last few months affect your strategy and outlook for the year?

Okay. Thank you, Rodrigo, for your question. Sorry for my voice. Yes, as you mentioned, the last week, we have increased our projection of inflation. We were -- we had 63% projection. Our research team has moved our projection to 72% for 2022 and 62% for 2023. Based on those estimates, our loan book for 2022, we are projecting an increase a little bit below inflation and deposits always talking about private and deposits also flowing below inflation probably and a little bit higher than loans.

The dynamics on our P&L, definitely, this would make us have more expenses. Remember that most of our expenses are salaries and are tied to the wages [negotiations] so that will increase our expenses. But talking about the margin, basically what the bank strategy is, is basically to capture wholesale deposits, which you pay a lower interest rate than the time deposits that are retail customers take. And those deposits invest both in LELIQ, which we have -- we are increasing our precision and bonds tied to CER adjustment. That would allow us our NII to grow during 2022.

For our year-end, to give you an idea, the results should be a little bit lower than the net income a little bit lower than 2021, sorry. Remember that we had the declaratory impact on cap that increased a lot our results in 2021. But excluding that, probably you could have -- also the result would be a little bit more negative have much higher inflation. So I don't know if I answered your question.

Yes, that's helpful. Maybe I have a follow-up. I mean in a context with these strict regulations, limited tools and you have in your headquarters in Spain, how do you evaluate your performance? Do you compare yourself with similar banks? How do you tell the -- your headquarters or your headquarters evaluate that you're doing a good job or not?

Well, we have a budget that we present every year to a holding, and we report on a monthly basis and we compare our projections to our budget. Obviously, our projections we keep them -- update them because in Argentina, the change in interest rates are very fast and probably -- for example, last year, we were projecting more income carrying from repo that as we mentioned in the call, they have been withdrawal and now that excess liquidity is going into LELIQ and we have more inflation than the one that we forecasted in our budget at the end of last year. So we go updating our projections, and we compare that to budget.

We also have internal KPIs, many of them tied to market share, tied to efficiency that we continue to monitor. And also we try to every transaction that we loan that we try to give, we analyze the profitability of those transactions. We try to perform a transaction that are profitable, and it's not that -- it's just a question of quantity, but a question of price. Those are the type of [notes] that we want to provide our customers.

(Operator Instructions) Our next question today will come from Carlos Gomez of HSBC.

Thank you, Ines, and thank you very much for the presentation. It's actually very detailed and very useful to have as we go over the results. So thank you, and I encourage you to keep producing it. Three brief questions. The first one is about Prisma. So just to clarify, do you have completed the sale? You have nothing there? Is that a business that the plan will consider entering in the future? Or you are happy to stay out of payments for now?

Second, on inflation. I mean I read what you have, which is 72% for this year, 62% next year. Are you considering the possibility that inflation will get really out of control and you might be contemplating 3-digit inflation? Or that is a low probability event for you?

And the third is strategy. BBVA in Argentina has made strategic moves in the past, but they tend to come later when you take your time to make your decisions. Right now, you have 8% market share in loans, 7% market share in deposits. Are you happy to stay the way you are? Or would you consider making a move now and trying to grow when the market seems to be relatively depressed, it might perhaps be a bit easier?

Yes. Thank you, Carlos. First of all, for your comments on our presentation. We are happy to have this explain our results. Okay. On the first question, Prisma, yes, we sold the whole of it. It's -- now we have no longer participation. For now, we are okay, and Prisma is a provider for us. And we are okay with that position. Regarding inflation, your question there was...

Is it maybe get out of control? I mean you have increased your projection to 72%.

As I mentioned in the call, we were in New York last week on our projection that we call a week before at a conference. And our projection there from our retail department was 63%. This week, it's 72%. So it moved really, really fast in Argentina, our projections.

Can we extrapolate?

Sorry.

Can we extrapolate 9% per week.

I wouldn't say the inflation is possible, but I'm not the expert to say exactly -- definitely, it's moving very, very fast. But personally, I don't see a 3-digit inflation. I can be wrong. According to our experts and through our research department that normally is very accurate to project inflation. I would stay with the 72% that today, they are projecting. But again, this can change in the next 15 days, in the next months, things in Argentina move very, very fast. Again, what we do with inflation is we keep managing the P&L and trying this hedge that we have that we're trying to do with the (inaudible) today are 4% of our equity and the real estate we own. This helps us hedge the effect of inflation in our balance sheet, which is very high, but it's common to all the market, not to all the banks.

And the third point was the market share, yes, it's decreasing. But I think it's more a question of lack of demand. We would be happy to be gaining margin more for the financing intermediation than rather from placing our excess liquidity in bonds, but the reality is that there is a lack of demand. Consumption is getting reduced. So we try to do our best, and it will be worth to just sit on the capital and do nothing. Definitely, if demand is there, we're going to attract it. But today, the lack of demand, it's a reality, and it's common for all the banks, all banks are reducing in real terms loan growth. So it's something that is more structural from the country and the contact rather for the bank that is lending less. I don't know if I answered your question.

(Operator Instructions) Showing no further questions. This will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to management for any closing remarks.

Okay. Thank you for your time, and please let us know if you have further questions. Have a good day. Bye.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.