Banco Bbva Argentina SA (BBAR) 2003 Q2 法說會逐字稿

Good day, everyone, we thank you for your patience and welcome you to this Banco Frances second quarter earnings conference call. With us today are Mr. Marcelo Ganestri, CFO; Soledad Linzioni of the Research Department; Claudio Gonzales of the Accounting Department; and Ms. Maria Elena Seguro, Investor Relations Manager.

One final note, today's call is being recorded. At this time, for opening remarks, I'd like to turn the conference over to Ms. Seguro. Please go ahead, ma'am.

Okay, thank you very much and good afternoon, everybody. Let me stress that some of the statements during this conference call may be forward-looking statements within the meaning of the Safe Harbor Provisions found in Section27A of the Securities Act of 1973 and the 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 Banco Frances' annual report on Form 20-F for year 2002, filed with the SEC.

Before going into the comments on June quarter earnings, I would like to make a quick review on the macroeconomic environment of the quarter and its impact on the industry. According to recent data, the economy continues to recover after the worst recession experienced in Argentina, caused by agriculture and construction sectors. During March 2003 quarter, GDP expanded to 5.4% over a year ago, while investments grew 20.6% over the same period. Consumption shows a moderate 2% recovery. And for the second quarter of this year, the economy remained robust. Imports [ph] institutions started to slow down, driven by peso appreciation. Industry activity increased 14% versus previous year level but shrank 0.4% as compared to 2003 in seasonally adjusted terms.

Consumer prices dropped 0.4%, due to a depressed demand, along with a lack of assessment in new CD rates and the trend setting [ph] of the peso. During the quarter - during the June quarter, currency showed a 5.2% appreciation to reach the 2.8 pesos per dollar.

On the financial front, we thought this remained in the system in spite of the liberalization of the [inaudible]. During the second quarter, total peso deposits showed a strong 8.6% increase -- this is 5.9b pesos -- while interest rates showed a decreasing trend from 20% to 10%, mainly at the end of the quarter to continue falling during July and August.

Going now to our bank, Banco Frances did a good job in weathering the 2002 crisis. The bank redesigned its business strategy to focus on the transactional business, which maintained sales force fully active. Commercial activity backed by both state-of-the-art technology and a wide distribution network was focused on increasing customer base, lowering the cost of funds while extending maturities, developing other goods products to satisfy a changing demand, increasing fee revenues, and maximizing the recovery of numbers on the loan.

As a percent market share and total deposits in the system reached 7.9% by the end of June, and the excellent performance of the bank in transactional banking is shown in the new position that Frances has in products such as debit and credit card consumption, ATM transactions, or the number of clients who pay for services. Today 30% of the average balance of saving accounts is related to salaries paid through the bank. Short-term financing, such as overdrafts, credit cards, and notes discounted, backed the sale of transactional products. The bank was also very effective in adjusting operated structures for the new business profile, making an important cost cut. Eighty-two branches were closed during 2002 and the first semester of 2003, with total personnel reduction of 1,181 employees. The bank continues to be strongly committed towards cost control and to make all necessary additions and changes in the operating structure.

At the present moment, with the macroeconomic environment showing positive signs, the bank is prepared to resume lending. We are permanently affecting the different businesses and sectors that could be demanding credit with a reasonable risk for the bank. We launched personal loans for the some segments. We are beginning to grant new loans to some of the middle-size companies mainly related to exports, having gone to a sector and imports of precision [ph] products.

Triple A companies are very liquid, where the demand is very short-term, only to finance working capital. Management expects recovery to continue with 5.7% increase in Telly [ph] B for this year and 4% increase 2004. We expect low inflation and foreign exchange rates to remain stable.

And let me now make some particular comments on the bank's results. Net income for the second quarter for 2003 accounted for a 7.2m pesos loss compared to a 154m pesos loss in the previous quarter. Operating income of the present quarter was affected by a negative net financial income, mainly due to the drop in CER [ph] index from a quarterly 2.05% level in the March quarter to 0.44% during this quarter and a 5.2% appreciation of the peso.

The highlights that, given the missions taken by the government during 2002 and 2003, the bank remains with an asset-to-liability structure in GAAP in terms and weight. Net financial income became strongly dependent on the relative behavior of CPI versus interest rates and on the evolution of the exchange rate, given both a long CER [ph]-adjusted position and a long foreign currency position.

A significant part of the bank's assets are variable rate assets adjusted by CER, less an interest rate. However, at present, almost all liabilities are fixed rates except for 1.8b pesos with SCON [ph] granted to Frances by the Central Bank and a diminishing 1.2b peso portfolio of Riscario de Pasos [ph].

I already mentioned the policy earnings that were in 2003 quarters explains most of the loss in the net financial income. Interest rates followed the same decreasing trends, though at a lower pace during the quarter to fall sharply by the end of June. At present, the average rate for 30-day CDs is lower than 5%. Likewise, the appreciation of the peso given the bank's loan foreign currency position of around $50m. This positive position stems from the capitalization of debt last December.

On the liability side, deposits continued to grow, the bank retained most of liberalized deposits in the last exchange of plan beginning last March. Peso deposits grew 166m pesos in April, decreased 80m pesos in May, and resumed growth in June with 57m pesos increased.

As for risk assets, total exposures probably [ph] expect to remain stable, totaling 9.3b pesos as of June are including the compensatory bonds of in 2012 for an amount of $600m or 1.8m pesos.

Private sector loans decreased mainly due to a write-off 101m pesos of commercial loans to the cancellation of loans during the quarter and for the effect of the peso appreciation on the [inaudible] portfolio.

Non-performing loans decreased 16% as compared to the second quarter in March. The non-performing ratio in improved from 9.7% as of last March to 8.3% as of the present quarter. It is important to highlight that loan loss provisions for the quarter totaled only 15.5m pesos. In this segment, it is believed to have the necessary coverage of non-performing loans stemming from the crisis and expect to have a low level of provisions as from this quarter onward. And despite the low level of provision for the quarter, the coverage ratio remained in 73.4% as compared to 75.2% in the previous quarter. Let me also mention that on taking into account total financing, this is loan securities and guarantees granted by the bank, the non-performing ratio reaches just in 2% with a 65% coverage ratio.

Going now to fee income, net income from services increased 7.9% as compared to the previous quarter mainly due to fees related to service charges on deposit accounts, other fees, which include fiscal debt restructuring, consulting services, and notes discounted, and to increasing capital market fees related to fund management services in Banco Frances King [ph].

It is important to announce that fees from foreign currency sales and purchases are not accounted for in net income services but in the financial income. As of June 2003, such fees amounted to approximately 17m pesos for the quarter as compared to 15m pesos in the previous quarter.

Administrative expenses remained almost stable. Higher personnel expenses related to an increase in salaries effective last April and higher advertising and promotion expenses were offset by lower [background noise] and an a decrease in staff.

The bank continues to be focused on cost control. In that sense, following a stretch in growth, the staff was further reduced in 62 employees during the quarter. As of June 2003, the bank had 3,869 employees and a network of 241 consumer branches.

Finally, let me mention that the Central Bank has installed a new capitalization regime for financial entities coming into effect in January 2004. Communication A-3959 of the Central Bank dated July 25, defines two corrective factors, number 1 and number 2, to temporarily reduce capital requirements. Should the bank have to comply in June, capital requirements demanded for January 2004, you should see excess capital on a consolidated basis and the effect on the individual basis.

Thank you very much for your attention, and we are now prepared to answer your questions.

Thank you, the question-and-answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit 1. Remember, if you are on a speakerphone to turn off your mute function in order to allow your signal to reach our equipment. Again, if you'd like to ask a question, please press star, 1 now. Our first question comes from Carlos Gomez [ph] with Citibank.

Hi, good afternoon. I have two questions. The first one, if you could give us exactly what the capital ratio would be with the new regime? And the second question would be on your -- the current taxes. If I remember correctly, in December, you activated about 316m pesos of the taxes. Should I understand that number is now reduced by 130m and could we understand why exactly that is? Thank you.

Yes, Carlos [ph], I don't know if what you are asking is what is the ratio of Frances, but compared to an 8%, which is now the requirement of the Central Bank, is that -- no -- I don't have the ratios here. What I can tell you is what I have already said. I mean, Frances is -- we should be coming to comply today with requirements of January, which would have today in excess, on a consolidated basis in capital requirements, and a defect in terms of non-compliance with Argentina.

Are we talking about several hundred million, 200m pesos, in excess?

Ah, in excess -- this is around 1,300.

Thirteen hundred?

On a consolidated basis.

A million consolidated?

Wait -- 1.3b.

1.3b consolidated.

Taking into account the ASFA [ph], no?

Mm-hm, mm-hm, okay. And the [inaudible]?

We don't have the exact number, because we are trying to understand how is it that we have to consider some of the new requirements in order to make this calculation.

Is it fair to say that the weightings are done at Banco Frances would not need an inclusion of capital, an extra addition of capital either from BVA or any other source?

I don't think that we are going to be needing more capital, because, in fact, we have this excess on the consolidated basis.

Okay, and on the deferred tax?

The second question was -- ah, yes, we have -- it is -- you have asked -- you have to consider that now you have 133 left in deferred taxes, which were these 360 that we made in December.

And is that for a new criteria or because you have to use them? Why do they reclaim now?

It's because of the reversal of temporary differences just for the method of calculations.

Okay. Okay, thank you.

There is one question remaining in our queue. Again, if you'd like to ask a question, please press star, 1. Moving on now to Cynthia Bijou [ph] with Goldman Sachs.

I also have two questions. The first one is what is the average maturity of the new time deposits that you are originating? And the second is when do you expect to deliver net interest margin figures are positive and how low will deposit rates have to go to facilitate that, assuming moderate loan growth and a stable effect, because, obviously, the appreciation of the peso affects your NIM [ph]?

Yes, Cynthia, the -- I raise maturities around 35 days -- most of the deposits are in 30 days, concentrated in 30 days now.

So that hasn't changed, vis-à-vis what you've been seeing in the past month, right?

It has been increasing because remember that now we can take deposits of seven and 15 days. So at the very first moment -- I mean -- July 2002, the concentration was in seven and in 15 days. Then, I mean, we were working in extending maturities, obviously, with different rates, and today you have that deposits are more in the 30 days than in -- obviously, in the seven or the 15 term.

Okay, great -- and the second question?

Well, it should be now. I mean, today we are paying less than 5% in CDs and CPI is expected to be around 5. So if we're saying the problem of Frances, particularly, which is a positive CER-adjusted position, our problem was in the June quarter that the CER adjustment was 0.44% for the quarter, and the average cost for CDs was something like 13%. As I told you, the interest rate fall down in that quarter, that it was more concentrated by the end of June, and it continued falling down. So today you have, as I told you, an average of less than 5. It should be today -- the answer to your question -- today or from now onward.

Okay, thanks.

Carlos Gomez has a follow-up question.

Yes, if there are no other questions, I would like to ask if you expect to stabilize or even grow the loan portfolio to the private sector slightly between now and the end of the year? And, second, I would like to know if there was some decree that changes the AFTB [ph] holdings back to the original bonds. Do you foresee any possible contingency or any possible to infuse funds into Consolidad [ph] or any of the assets receiving insurance company in the future? Thank you.

Yes, to your first question, yes, we should be increasing loans to the private sector in the second semester. As I told you, it is not very easy. I mean, we have this personal loan, this new personal loan that we have learned most of the banks are doing the same thing. Smaller medium-sized companies, we are giving some loans, but this is very slow and, as for the big corporations, they are not demanding credit because they are very liquid today. But what is true is that today we are looking forward to being lending, and this is part of what decision is there.

And your loan portfolio right now is about 2b pesos to the private sector?

Yes.

Okay. Do you expect that to change by the end of the year or not by any material amount?

No, not by any material amount.

Okay.

Yes, it is going to change but not materially -- very slowly. And your second question is this exchange for bonds -- it's not going to affect Consolidad [ph], it is mainly affecting the fund.

I understand that, but --

-- the profitability of the fund, the [inaudible] are affected in this case -- other companies.

Yeah, I understand that, but if I understand correctly, you have a responsibility to pay the second performance versus the average of the system. Now, if I understand correctly, in Banco Nacion's [ph] ASABD [ph] exchange, so a time con [ph] devaluation could be -- could be with enough of a differential that you -- that all the other AFJB's [ph] might be under-performing Banco Nacion [ph]. I wonder if that is something that concerns you?

What you are saying about Banco Nacion, I don't know exactly, but Banco Nacion is about 6% or 7% of the market share -- of the system. So the difference behavior of Banco Nacion comparing with the rest of the system with this market share will have a --

-- no consent of what you are asking.

Mm-hm, mm-hm, okay, and on the insurance companies? Do you have any contingency going forward?

No. Really, I don't have an exact response -- answer -- for you, but we are not expecting big consequences because of this measure.

Okay, thank you very much.

Ms. Seguro, there are no further questions in the queue at this time. I'll turn the conference back over to you for any additional or closing remarks.

Okay, thank you very much, everybody, and please call us if you have any further questions. Thank you.

Thank you, and that does conclude today's conference call. Thank you for your participation.