Banco Bbva Argentina SA (BBAR) 2005 Q4 法說會逐字稿

Good day, everyone, and welcome to the Banco Frances fourth-quarter earnings conference call. Today's call is being recorded.

At this time, I would like to turn the call over to Ms. Adriana Arbelbide, Investor Relations Officer, who is sitting with Claudia Gonzalez and [Enrique Bartolome], Head of Planning Department and Head of Accounting Department.

Good morning, everybody. 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 27-A of the Securities Act of 1933 under US federal securities laws. 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 the Form 20-F for the fiscal year 2004 filed with the US Securities and Exchange Commission.

As customary, we will make a brief summary of the most important points of the fourth quarter fiscal year 2005 and will then be open to questions. First, I would like to refer to the macroeconomic environment and the financial industry evolution during the present fiscal year. In the course of year, following the successful sovereign debt restructuring, Argentina achieved a persistent economic growth. The economy's activity showed [lack of] slowdown, and after three consecutive years, GDP grew approximately 9%. With an economy growing at high rates, inflationary pressures started to show up during the first quarter of the year. Consumer prices averaged 1% per month, while core inflation remained above CPI with a 1.1% average per month.

Regulated prices, mainly public and electric services carriers, slightly impacted on inflation. However, the year ended showing a 12.3% increase in prices, almost twofold of previous year. The slow increase in foodstuffs prices shown during the last semester was the government's drive to increase export taxes on meat and dairy products and to reach an agreement in December with the main supermarket chains for a 15% reduction in prices from a list of products.

In spite of this, food and beverage prices rose by 0.8% in December, and negotiations with the main food producers to freeze prices for a longer period continued in early 2006. For the [margin] 2005 the government was able to sustain [fiscal] surplus with a primary [result] surplus close to 3.7% of GDP, in spite of the increasing primary expenses, mainly [transfers] to provinces for co-participation and capital expenses.

Anyway, the year's characteristic was a huge interest payment and debt amortization of approximately $12 billion that the government had to face jointly with a decision of the government to cancel completely and in advance its $9.5 billion debt with the IMF, making use of accrued international at the Central Bank.

With respect to the financial system, during 2005 the financial system started to show positive results. Improvements were sustained by the gradual recovery in interest margin and a reduction of charges associated with 2002 crisis. Another outstanding factor was represented by growth shown in private-sector loans, one of the most dynamic variables, and the strong rediscount cancellation.

As for the bank, during 2005 Banco Frances remained as the leading private-sector bank, ranking first both in terms of deposits and shareholders' equity. [When successfully bolstered], this great activity aiming to rebuild its traditional loan portfolio composition not focused on the private sector. The outcome of our strategy was quite successful. Banco Frances grew almost 1.6 billion pesos in private-sector loans; expanded 22.5% in fee income business; fully repaid the financial support granted by the Central Bank during the crisis; reduced 1.6 billion pesos its public-sector exposure, with no significant impact in its [P&L] and currently complying with regulation [3911], which limits public-sector exposure to 40% of total assets; significantly improved the [release of private] assets to total assets from 28% a year ago to 45% by the end of 2005; maintained strong asset quality and efficiency standards; and more than offset the losses registered during previous fiscal years due to the impacts of the crisis, reaching a positive bottom line that represents a 7% return on equity, including the charges related to the amortization of the loss derived from the payment of legal injunctions. And let me highlight that on excluded [self-tax], return on equity grows to almost 31%. The significantly improved profitability achieved during 2005 set the basis for challenging future growth of recurrent earnings, which becomes our main target for the coming years.

Now, let's turn our attention to the quarter's earnings. For the 12th consecutive quarter, Banco Frances showed a positive net income. This income for the quarter ended December 31, 2005 totaled 31 million pesos. December 2005 quarter brought about a strong operating income, mainly explained by higher net income from services and higher net financial income, combined with lower provisions for loan losses, partly offset by an increase in administrative expense.

Long CER position was positively impacted by the increase in CER index. Furthermore, net financial income also benefited from a 67 million pesos gain coming from the sale of guaranteed loans to [Raval 5 Trust] carried out last November, while other income expenses accounted for a higher loss generated by the marked-to-market valuation of part of public-sector bonds. The bank was able to offset this last negative effect in addition to the 55.9 million pesos charge derived from the (indiscernible) of the loss related to the payment of legal injunctions.

In this fourth quarter, net financial income increased 32.7% as compared to the previous quarter, mainly due to the aforementioned 67 million pesos gain stemming from the sale of guaranteed loans. Our financial margin also benefited from a higher CER index variation, given our 3.2 billion pesos long CER position within an environment of negative real interest rates and from an increase in private-sector loan portfolios.

Going now to the level of activity, total deposits of the bank rose 19.4% as compared to December 2004 quarter, reaching a 10.5% market share in public-sector deposits in December 2005. Growth, as compared to the same quarter of previous fiscal years, was shown in all of the different kinds of deposits, except for rescheduled deposits, with special emphasis in saving accounts and time deposits.

As for foreign currency denominated deposits, such funds grew 56.6% in the last 12-month period, amounting to $[464] million as of December 31, 2005.

Going into (indiscernible), a further expansion of private-sector business jointly with a decrease in public-sector portfolios let us improve the ratio of private assets to total assets from 38% a year ago to 45% by the end of the first quarter. Following the remarkable performance of commercial loans during the first semester, in the second half of the year, retail segment was the one driving growth in loan portfolio. The [commercial actions] implemented at the beginning of the year in this segment showed a positive outcome, mainly in personal loans and in credit cards, which grew 95%, that is 173 million pesos; and 56%, that is 141 million pesos, respectively.

On the other hand, with respect to total exposure to public sector, as previously mentioned, during the present quarter, taking advantage of the improvement in public-sector asset valuation will further reduce public-sector exposure through the sale of guaranteed loans. In addition, the bank decided to mark to market part of the remaining public-sector bonds, aiming to achieve a stronger financial condition. And let me remind you that we are currently complying with Regulation 3911, which limits public-sector exposure to 40% of total assets, with our 35.5% ratio.

Now, let's move on to fee income. Once again, the bank was able to maintain its strong performance in the transactional business. Net income for services amounted to 93.7 million pesos. The 15% growth as compared to the same quarter of previous fiscal year is mainly explained by an increase in operational volume, with special emphasis in service charges on deposit accounts, credit cards, insurance and other fees.

It is important to note that income from foreign exchange purchase and sale is not accounted for in net income for services but in net financial income. As of December 31, 2005 such income amounted to approximately 20.1 million pesos.

As regards to administrative expenses, higher expenses are mainly explained by an increase in personnel and advertising and promotional expenses. The increase in personnel expenses, as compared to the same quarter of previous fiscal year, is mainly related to the different salary adjustments ordered by the government and the ones agreed on with the labor unions, jointly with an adjustment in the bonus provisioning related to higher productivity levels.

With respect to advertising and promotion expenses, the increase is explained mainly by a more aggressive business strategy in an environment of higher activity levels. As of December 31, 2005, the bank had 3,642 employees and a network of 230 consumer branches, complemented by [complementary channels].

As for other income expenses, let me remind you that under this account, we will register the 55.7 million pesos charged related to the amortization of the loss derived from the payment of deposits and the legal injunctions, the charge stemming from the marked-to-market valuation of part of public-sector portfolio and the provisions to cover the taxable deferred assets stemming from the use of the deferred tax method.

It should be there in mind that while the present quarter includes a charge related to the marked-to-market valuation of part of public-sector assets, the December 2004 quarter was impacted by the provisions registered to cover the taxable deferred assets, the [opposite entry] of which was included in income tax.

And let me conclude. We begin our main goal 2006 -- to expand our private-sector loan portfolio, capitalizing our growth potential. We did well in 2005. We strengthened our modest position in terms of deposits, loans and in the transactional business, and we also improved the quality of our balance sheet. We are back on track, and looking forward, we believe that volume is still the great challenge for future profitability.

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

(OPERATOR INSTRUCTIONS). [Carlos Gomez], Legg Mason.

I'm actually going to go three questions, despite the request. The first one goes first to your amparos amortization, the legal injunctions. If I look at your balance sheet, you went from 610 in the third quarter to 565, so that's a decline of 45 million. You amortized 55 million. Should I understand that you still have an inflow of 10, 11 million per quarter? And if that is the case, how long do you expect it to continue?

The second question is regarding your loan growth. Could you quantify your loan growth targets for 2006 and 2007?

And finally, you have a tax credit of 360 million pesos. Can you remind us when the tax credit could expire and, more exactly, when you could expect to start paying taxes again?

Let's begin with the first one, Carlos. In the first one, with respect to the legal injunctions, yes; the difference is the entrants -- the new entrants. We can't tell you until when they will enter; now we will have these entrants that, yes, the difference is that we still have the amortization in one hand, and in the other one we still have these new entrants that will present something like between 2 and 3 million per month. So that is the difference.

With respect to the second one, it's the loan growth for 2006. We -- I will bet it is close to something like between 40 -- close to 45%, the whole loan portfolio.

So that will be for private-sector loans?

Private sector, of course, yes. We are not referring to public sector now.

And with respect to the last one, can you repeat it?

Yes. It is, first, the tax credits that you have -- you have 360 million. So I imagine you can you use that in the future, so I want to know when that expires and when you expect to start having an income tax charge in the income statement.

This is (indiscernible) speaking. We have this tax in the asset, but it's the tax remaining from (indiscernible) differences, not the tax loss carryforward. So it changes every year, depending on the differences with the taxable income and the accounting income.

The question of expiring is a question of accruing in the time that for tax purposes and for accounting purposes, there is taxable or not [in income]. So I think I tell you when. (Multiple speakers) a question of time. It's not a tax loss carryforward. That is not, in this case, in our assets.

Okay. So it does not expire?

[Not yet].

What about when do you expect to start paying taxes again, through the income statement?

We are expecting that -- it depends on the expiring of our tax loss carryforwards. So we are expecting that in 2007 we will have taxable income, but we have still a tax loss carryforward that we can use in order not to pay the income tax there.

So you wouldn't expect to have a tax charge in 2007, either?

No.

In 2008? Or that's too far?

It's too far for our projections.

(OPERATOR INSTRUCTIONS). And, Ms. Arbelbide, there appears to be no questions at this time. I'd like to turn the conference back over to you for any additional comments or closing comments.

Okay, thank you, once again, for joining us. And should you have any other questions, you can call us to our offices. Thank you.

Thank you. That does conclude today's teleconference. We thank you for your participation, and we ask that you have a great day.