Banco Bbva Argentina SA (BBAR) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the third quarter 2008 earning call for BBVA Banco Frances. Today's conference is being recorded. At this time, I would like to introduce Daniel Sandigliano, Investor Relations Officer, Cecilia Acuna, Investor Relations. And sitting in for Martin Zarich, CFO, we have [Enrique Savante], Head of Planning. Mr. Sandigliano, please go ahead.

Hi. 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 27a of the Securities Act of 1933 under US federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Additional information concerning these factors is contained in Banco Frances' annual report on Form 20-F for the fiscal year 2007 filed to the US Securities and Exchange Commission.

As customary, we will make a brief summary of the most important topics for the third quarter of fiscal year 2008. And then we'll be open to questions.

Let's begin with the macroeconomic environment. During the third quarter of 2008, economic activity continued to expand, but at a slightly slower pace than during the previous quarter. According to the last estimates of economic activity, the economy grew by 7.1% year over year on average during the months of July and August and below the 7.5% of growth recorded in the second quarter of 2008.

Tax collections continued to increase during the third quarter, rising an average by 40% year over year, primarily driven by the 130% increase in export duties, which reflects the hike in international commodity prices. The primary fiscal surplus of the national public sector rose to ARS11 billion, a 33% improvement compared to the same period of 2007.

Primary fiscal spending, which has increased by 40% in the second quarter of 2008, decelerated, growing by 31% during this quarter. Trades helped us improve compared to the second quarter as export of [cedar greens] recovered [intermission] after the conflict with the farming sector was resolved.

Trade balance has accumulated a surplus of $10 million as of September 2008, almost 44% higher than in the same period of 2007. International reserves reached $47 billion at the end of September 2008, a decrease of only $400 million during the quarter. The exchange rate rose at ARS3.13 per dollar at the end of September 2008, 3.5% above the levels at the end of June 2008. The variable rate among private banks decelerated from 18% levels in June 2008 to 12% in September 2008.

The stock of bills and notes remained stable during the quarter. And the stock of reserve repos grew by ARS7 million, 143% increase, improving the liquidity ratios of the bank.

Credit sector deposits increased by 5.8% on average during the third quarter of 2008. Loans to the private sector in pesos and in foreign currency increased by 4.5%, showing a slight deceleration compared to the previous quarter.

Slower economics suffer an important iteration during the third quarter of 2008 with substantial turbulence in the global capital markets. On the other hand, the [auction] system saw a high level of strength and signs of normality with good basis of liquidity and solvency.

Going to the bank's performance BBVA Banco Frances obtained a net gain of ARS306 million in the first nine months of 2008, an increase of 33% with respect to the cumulative results in the corresponding period of the previous year. The improvement in the bank's results is based on weighted business volumes, which allowed for an expansion in the [private] financial margin.

The larger sectional volume is reflected in a 30% year-over-year growth in net income from services. Third quarter net earnings reached ARS117.5 million, an increase of 3% compared with the results registered in the previous quarter and 51% greater than in the corresponding quarter of the previous year.

Now let's move onto the P&L. Net operating income showed larger earning as a consequence of an improvement in net financial income and in net income from services partially offset by higher charge in provision for loan losses and an increase in administrative expenses.

The improvement in the net financial income is mainly due to the expansion in the private sector portfolio as well as to an increase in the bank's spread, which were due to an increase in financing to small and medium companies and to the retail segment, partially offset by the [assortment] in the public sector portfolio.

In the third quarter of 2008, this assortment in public assets reached ARS76 million, exceeding the Central Bank's requirements by [ARS49 million]. During the first nine months of the year, this variation adjustment was ARS286 million, of which ARS170 million exceeds the regulator's requirements.

Net income from services maintained its positive trend in this quarter, increasing 11% as compared with the amount registered in the previous quarter and 30% above the income obtained a year ago.

This increase is explained mainly by the rise in the activity level. Growth is also explained as a consequence of increases in fees as associated with retail activity, mainly those related to [current] and savings accounts, credit cards, and insurance commissions together with those coming from the current trade operations in the middle-market segment and capital market activities.

Administrative expenses increased by 5% during the third quarter and by 30% during the last 12 months, mainly driven by the higher activity and investment level, which also resulted in the increase in personnel and administrative expenses and in higher cost in [renegotiation] these contracts. The increasing personnel expenses are explained to the higher [creditor group] with the labor unions and the larger numbers of employees.

The rise in organization expenses are a reflection of greater investment and information technology development. Activity levels during the third quarter, BBVA Banco Frances continues focus on its traditional financial information business, especially on the retail segment.

Credit sector loans totaled nearly ARS10 billion as of September 30th, 2008, increasing by 7% as compared to the previous quarter. But compared to the quarter ending on September 30th, 2007, the increase was 23%.

Growth was experienced in both the retail and middle-market and corporate segments with personal loans and credit cards as the main contributors to this growth in the for assessment, increasing by 6% and by 10%, respectively, with the Company notes and loans relating to the foreign train construction grew by approximately 12% and 2.5%, respectively.

The strength of the [asset-quality] ratios continues differentiating BBVA Banco Frances in the financial sector, where it continues to be (inaudible). As of September 30th, 2008, the number from loans represented 0.83% of the total loans, whereas the [coverage] ratio of number from loans with provisions reached 258.2%.

As of September 30th, 2008, the public sector national government in total represents 13% of the total assets--of the total bank's assets. During the third quarter of 2008, this exposure was reduced mainly by the assessment in public assets and due to the expiration of [a reverse repo transaction] with government bonds on [Q3] of 2008.

The Central Bank (inaudible) [notes] portfolio net of holdings like to repo transactions remains stable during the quarter. As of September 30th, 2008, Central Bank instruments received from repo transactions were merely ARS700 million, whereas the net portfolio was ARS1.4 billion.

Regarding liabilities, during the third quarter of 2008, the deficit grew by 7.7%, surpassing the 5.8% of growth registered in the financial sector and reversing the decrease experienced during the second quarter.

BBVA Banco Frances has a comfortable liquidity position. As of September 30th, 2008, [decreased] assets represented 35% of total deposits. Current accounts grew by 7.6% in the last three months of 2008, maintaining this proportion in relation with the deposits, which allowed the bank to maintain its cost of [funds] in similar levels than in the previous quarter.

Furthermore, [time] deposits grew by 8.3%, growing not only from retail, but also from corporate and institutional clients. And the other hand, the decreasing trend of [CER] (inaudible) type deposits continued during this quarter.

Capitalization--during the last three months (inaudible) quarter, equity grew by 4.3% due to gains obtained during the period, partially offset by an increase in unrealized [position] difference. This growth was reflected in an increase in the [excess] of capital over Central Bank's requirements, which reached more than ARS800 million. Such excess represented 38% on total shareholder equity, [evidencing] an important level of solvency.

Thank you very much. We are now ready to answer your questions.

Thank you. (Operator Instructions) We'll hear first from Tito Labarta with Deutsche Bank.

Hi. Good morning, Daniel. Just a couple of questions--it seems loan growth has been on a year-over-year basis has been decelerating around 18% year over year. Just wanted to get your thoughts or expectations. Do you think this trend will continue to decelerate? Like how low do you think the loan growth would go? That's the first question.

The second question--provisions increased quite a bit in the quarter, even though asset quality was fairly stable. Is that to your expectations that asset quality will deteriorate further or something else going on there, if you could comment on that? Thank you.

Hi, Tito. The first question, well, we are expecting a slowly lower loan growth than the ones previously forecast already at the start of the year and at the start of the third quarter. For 2008, we are expecting a loan growth of around 17% or 18%. And for 2009, well, we are revising our forecast. But we think we are in the same level or a lower growth than this year.

Regarding the second question, we are very comfortable with that level of [NPL]. We have seen a slight deterioration. We think this deterioration will continue. But we are not expecting a high deterioration. We forecast at the beginning of the year an NPL between 1.1% and 1.2% at the end of the year. And we think we will be in a lower level than 1%.

Okay. Thank you. And then just a follow up--then would provisions remain at these levels, or--?

Yes, probably some will continue in this level. We think the provisions will continue in this level or slightly above this level, but not so high.

Excuse me. Adding--my name is Enrique Savante. I'm the Head of Planning. And I would like to add something building on what Daniel was saying regarding the provisions. I would like to stress here that we are making provisions in excess of what the regulator is telling us. I mean, instead of the 1% in some products, basically retail products, we're going to 2% or 2.5%. And we will continue with this policy. You have to take into consideration that we have a coverage ratio of around 250.

And as well, regarding the NPL, we really feel pretty much comfortable with this 0.8% that we have. We are the leader of the market in this issue. And obviously, we're going to suffer a slight deterioration of this. But it's going to be slight. And we have it absolutely in control. And as well, with the provisions that we are making, even we are coupling the expected losses in some of the products. So, we really feel comfortable in these issues. And that's it.

All right. Thank you very much.

(OPERATOR INSTRUCTIONS) We'll hear next from [Frederico Ray] with Raymond James.

Hi. Good morning, everyone. I have a question regarding interest spreads. So, far, you have been able to somewhat offset a higher funding cost, especially from deposits. My question is if you expect to continue compensating considering the dramatic increase in interest rates on the profits that we have been seeing during the past days or if you expect there is room to continue translating such increases into higher lending rates or, on the other hand, you expect this to result in, for example, in the reduction of the loan portfolio.

Hi, Frederico. Well, we are seeing an increase in our cost of funds. But we are seeing also an increase in the spread. We are increasing the rates, the loan rates. And well, in some cases, relating with the second part of the question, companies are stopping taking loans. So--

I would add here that obviously we will have a market that--with rates going down and as well still. I mean, the last [Butler] publishes around 26%, so a good indicator for that. Obviously, this indicates some spread of the liquidity on which we are--we feel really, really comfortable. So, I would like to stress this point here.

I would say that you have to also take into account that we have 50% of our deposits are current accounts. So, that's obviously free for us. And it's going -- and those are going up instead of signed deposits are the ones that are going down. And we for sure don't want to consolidate some of the rates that are going around the market these days because we believe that those are too high rates. But we have been seeing in the last days that this is going through a process of normalization.

And let's say, well, the difficulties of the -- the doubts of the retail public are going down. And now we can say that we are getting through these -- I don't like to talk about prices --but these movements in a quite good way. Obviously, the rates are going up. And the time deposits are 50% of our deposits are going to both hope the best with that growth. But we have a lot of assets that also are going to help with this growth. And we are trying not to affect the final spread. And that's the point. We are--even in this, we are a little bit of an increase in our spreads by working hardly on the pricing aspects and working hard on the mix aspects, focusing on the retail segment and [prioritizing] that segment.

Thank you.

And, Mr. Sandigliano, we have no further questions at this time. I'll turn the conference back over to you for any additional or closing remarks.

Well, thanks, again, for showing up. And should you have any further questions, don't hesitate to contact us in our offices. Bye. Thank you.

That does conclude today's conference call. We'd like to thank you all for your participation. Have a great day.