Banco Bbva Argentina SA (BBAR) 2006 Q1 法說會逐字稿

Good day everyone and welcome to today's Banco Frances first quarter fiscal year 2006 earnings conference call. As a reminder, today's call is being recorded. With us today are Marcelo Canestri, CFO, [Enriquez Barthalomez], Head of Planning and MIS; Claudio Gonzales, Head of Accounting. Now at this time for opening remarks, I would like to turn the conference over to Adriana Arbelbide, please go ahead.

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 first quarter fiscal year 2006 and we will then be open to questions. First, I would like to refer to the macroeconomic environment and the financial industry evolution during this first quarter.

GDP continues to grow showing a 9.3% growth in aggregate term, though economic activity appears to be deteriorating very gradually. Preliminary data for this first quarter of the year indicates that industrial projections include 7% year-over-year vis-a-vis 8.8% registered in the fourth quarter of fiscal 2005. Consumer prices rose by 2.9% in the first quarter, well below the 4% recorded in the same period of previous fiscal year. Government has implemented measures aiming at keeping inflation under control.

On the other hand, the primary fiscal balance which is 4.9 billion pesos in the first quarter, although expenditures had a larger increase than total fiscal revenues. However, we expect that 3.4% fiscal surplus for 2006. For trade balance, the strong import growth continued into 2006 leading to a very slight erosion of trade surplus, which fell by 12% in the first three months of the year. Due to stronger capital inflows, the Central Bank increased its intervention in the foreign exchange market though complying with money targets. I think the second half of 2005, the Argentine peso continued to depreciate in the first quarter. The exchange rates crossed almost 1.6% above the exchange rate at the end of December 2005.

With respect to the financial system, private deposits both in pesos and dollars maintained in the positive trend growing 4.2 billion pesos as compared to the December 2005 quarter balance. On the other hand, public sector deposits grew by 1.2 billion pesos, and on the asset side private loans continue to grow showing a 6.3% increase in the three months period. Our research department estimates for 2006 include a GDP growth of almost 8% with inflation under control reaching 12% and stable exchange rates close to 3.16 pesos per dollar. For the Bank, once again Frances showed a successful performance. Business continues to grow following the economy and we were able to take advantage of that. So far this year we complied our target of increasing our share in private assets.

Private sector grew at a 46% annualized rate in the first three months and we increased our market share from 6.2% in March 2005 to 7.2% at the end of this quarter, while we maintain our leadership in private sector deposits. We also kept growing in the transactional business and further improved the financial condition of our balance sheet. Furthermore, strong asset quality on efficiency standard also differentiates Frances in the market and we continue improving the relations private asset to total assets from 26% a year ago to 49% by the end of March 2006.

Having said that, let me highlight that return on equity still including the charges related of the amortization of the loss derived from the payment of legal injunction increased from a 7% level in the December 2005 quarter to almost 9% in March 2006. Furthermore, should we exclude the effect of legal injunction, return on equity will create 30%. In 2006, we continue to face the challenge of further increasing the current earnings and we are aware that business volume is the answer for achieving our goal. We are working on that direction, consolidating our position in the market, and we are confident that we will be able to attain a sustainable profitability.

Now, let's turn our attention to the quarter’s earnings. Net income for the quarter ended March 31, 2006 totaled 40 million pesos. Whereas the rent, quarter's figure show the strong operating income mainly explained by high income from services and high net financial income. Net financial income benefited from the sale of public sector loans and bonds jointly with higher market evaluation of public assets.

On top of that, the bank loan in our position which reached 3 billion pesos as of March 2006 and as further development of business, private business, positively impacted on the quarters' margin. However, as explained in our press release, quarter earnings continue to be negatively impacted by the charge derived from the amortization of the loss related to the payment of legal injunction.

In addition to the registration of provisions during the present quarter that we will allow the bank to complete the mark to market evaluation of public sector bonds issued by Federal government. Going now to the level of activity, total deposits of the bank grew 17.6% as compared to the March 2005 quarter, with the 10.5% market share in private sector deposit in March 2006. Growth as compared to the same quarter of previous fiscal year was turning all of the different deposits except for the paying retail deposits with special emphasis in current accounts and time deposits.

As for foreign currency denominated deposits, such funds grew 59% in the last 12 months period amounted to $467 million as of March 31, 2006. Going into risk assets, our further expansion of private business jointly with a decrease in public sector portfolio let us improve the ratio of private assets to total assets from 26% a year ago to 49% by the end of the present quarter. The performance in private assets surpassed our expectations. Private loans grew almost 450 million pesos in the quarter mainly driven by other loans, advances, no discounts in the corporate segment, and personal loans and credit card financing in the retail segment.

On the other hand, with respect to total exposure to the public sector, as previously mentioned, during the present quarter, taking advantage of the improvement in public sector asset valuation, we will further reduce public sector exposure through the sale of guaranteed loans and government bonds. In addition, the bank decided to register provisions that will allow completion of the mark-to-market valuation of public sector bonds issued by the Federal Government aiming to achieve a stronger financial condition.

Now, let's move onto fee income. Following the positive trend once again, Banco Frances was able to maintain its strong performance in the transactional business. Net income from services amounted to 100 million pesos, a 20% growth as compared to the same quarter of previous fiscal year, is mainly explained by an increase in operational volume, in particular in service charges on deposits account, 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 from services but in net financial income. As of March 31, 2006, such income amounted to approximately 18 million pesos.

As regards to administrative expenses, higher administrative expenses as compared to the same quarter of previous fiscal year are mainly explained by an increase in personnel and advertising and promotional expenses. The increase in personnel expenses in 2005 is mainly related to an adjustment in the bonus provisioning together with the salary increases ordered by the government or agreed upon with labor unions, and the limitations of cash on the amount of social securities contributions and expenses. As for advertising and promotion expenses, the increase is mainly explained by a more aggressive business strategy in an environment of higher activity level. As of March 31, 2006, the bank had 3,658 employees and a network of 230 consumer branches complemented by alternative channels. As for asset quality, Banco Frances maintains its leadership in the market with the non-performing ratio of 1.2% and 147% coverage ratio.

And let me conclude with some recent events. As approved in the Ordinary and Extraordinary Stockholders Meeting held last April 27, following the corresponding authorization, the bank will pay a cash dividend of 27 million pesos, which shall be made to 30 days as of May 5. Thank you very much for your attention and we are now ready to answer your questions.

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

Hi Adriana good morning. I have three questions. First, if you could give us your estimate for loan growth for Banco Frances for 2006. Second, we would like to know how you expect to spread to evolve over the year given that we are experiencing higher interest rates in Argentina than in the past, and third, we would like to know if the bank is going to take advantage of the facility to delay the amortization of amparos. Thank you.

Yes Carlos. Hi this is Adriana. With respect to the first question for loan growth, we expect loan growth for 2006 to be close to 40 or 42%. With respect to the spread, the spread, yes it is true that interest rates, the idea is that interest rates are increasing similar we are in an environment of negative real interest rates. So, what we expected that this environment of negative real interest rates is going to be less negative than in the past. So, spreads maybe soften a little bit. The stage is that was trying to grow remember that were very profit on the retail segment and that is the main key. And as for as facilities, what I want to say, no we are not thinking on taking back into consideration. For the moment we only have you know that is the biggest impact of this amortization is going to be completed by the end of 2007 or the beginning of 2008. So, we don't think that for the moment we are going to be taking advantage of that.

Okay. And maybe just in the press release, could you remind us the stock of amparos and the stock of amortizations that you have at this point?

The stock of amparos or something like a little bit less than close to 1000 where you have letting the --

Yes that is in the press release and the accumulated amortization?

On the -- well, whatever it is that we have amortize that mainly by you have something like 220 or 230 for the fiscal year. So we have something like 56 amortized in the first quarter. So you have the remaining for the 220 for 2006 or something similar to that for 2007.

My question is how much do you have accumulated until now. Accumulated amortization how much you have amortized over the last three years?

The original value was close to 1.1 billion Carlos. So and we have something like 5 billion, five times it shows something like 600 that we have already amortized. Okay.

We have no further questions in our queue. [OPERATOR INSTRUCTIONS] Ms. Arbelbide, there we have no further questions in our queue. I will turn the conference back over to you for additional or closing comments.

Okay, thank you very much for joining us. And well, if you have any further questions, you can call us to our offices. Thank you.

That does conclude today's conference call. We thank you for your participation.