Banco Bbva Argentina SA (BBAR) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Second Quarter 2009 Earning Call for BBVA Banco Frances. Today's call is being recorded.

I would now like to turn the call over to Mr. Sandigliano, please go ahead sir.

Good morning, everybody. Let me say that some 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 expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Banco Frances' Annual Report on Form 20-F for the fiscal year 2008, filed to the US Securities and Exchange Commission.

As customary, we will make a brief summary of the most important topics of the second quarter of fiscal year 2009. And then we will be open to questions.

Let's begin with the macroeconomic environment. During the March and April of 2009, the economic slowdown registered in the fourth quarter of 2008 continued. The monthly [estimator] of economic activity grew 4.7% year-over-year, despite this industry and construction sectors decline during the period.

During the second quarter of 2009, fiscal revenues increased by 13.2% on average year-over-year. The decrease in economic activity continues to have a negative impact on tax collections, but income-tax and export duties recovered due to higher agriculture product prices.

In the second quarter of 2009, the primary pickup that of the national public sector, decreased by 76.7%, compared with the same period of 2008 due to an increase in primary expenditures.

The Central Bank intervention in the foreign exchange market was a net purchase of $28 million during the second quarter of 2009. The exchange rate according to the Central Bank, closed at ARS3.80 per dollar, an increase of 2.2%, compared to the first quarter of 2009.

The international reserve stock was $46 billion, showing a decrease of $500 million during the quarter. The dollar rate of private banks in the month of June closed at an average of 12.9%, it remained stable during the period due to the liquidity conditions in the financial system.

Total deposits in the financial system increased 2.8% on average in the second quarter of 2009, influenced by dollar deposits, which grew 10.8% due to devaluation and quantity. Public sector loans increased by 2.5% in the first quarter of 2009, a slight increase compared with the performance of the previous quarters.

So, going through the last performance, net income for the second quarter of 2009, totaled ARS61.8 million, which represented a decrease of 28%, compared to the previous quarter. Nevertheless, net operating income for the second quarter showed an increase of 68%, compared to the first quarter of 2009.

Total earnings in the first and second quarter of 2009 were ARS147.7 million, representing a return on equity of 13.7% in annual terms.

The growth in net income and in net income from services was offset by greater income tax provisions. The interest margin improved as a result of growth in the public sector loan portfolio on lower cost of funds.

During the second quarter of 2009, the rate of growth in the financial private sector continued to decrease. Nevertheless, at BBVA Banco Frances, private sector loans grew 5.4% in the second quarter of 2009.

Recurring deposits at BBVA Banco Frances grew 1.5% in the second quarter of 2009, in the previous quarters outside deposit continued to show the greatest growth, increasing the participation in total deposits. As of June 30, 2009, the balances in the recurring type accounts represented 52.6% of total recurring deposits.

The 2009 edition of Euromoney Magazine named BBVA Banco Frances as the Best Argentine Bank, emphasizing its leadership in terms of (inaudible) and in earnings growth amidst further declines by the international financial crisis and the Argentine based (inaudible) reforms.

Now let's move on to the P&L. The increase in net financial income is accountable of higher income from the private loan portfolios, together with a lower cost of funds. In additions, net financial income for the second quarter of 2009 does not include losses related to the adjustment in public bond evaluations. We have taken into account such adjustments, which was registered in the previous quarter. Net financial income increased by 1.9% and 40.8% compared to the previous quarter and to the second quarter of 2008 respectively.

Provision for loan losses registered increased during the second quarter of 2009, as a consequence of minor growth in the non-performing portfolios, mainly in retail loans.

Net income from services maintained level similar to those in the previous quarter, which increases in credit card fees and in financial advising and capital market related fees, partially offset by the growth in credit card expenses.

Compared with the second quarter of the previous year, net income from services grew 26.1% due to a higher level of activity mainly in the construction segment, which resulted in higher fees related to checking account, credit cards and insurance commissions, in addition to those linked to foreign trade operations.

Administrative expenses decreased by 4.1% during the second quarter of 2009, compared to the third quarter of 2009. The decrease is mainly explained by lower personnel expenses as a consequence of voluntary retirement during the second quarter of 2009. However, this was partially offset by an increase in tariff after an agreement with the labor unions.

General expenses in the second quarter of 2009 were similar to those in the first quarter of 2009. As compared with the second quarter of 2008, administrative expenses in the second quarter of 2009 grew 32.5% due to higher salaries and cost relating to voluntary retirement.

Furthermore, general expenses increased due to higher charges in taxes, amortization and organization expenses, which were partially offset by lower advertising and promotional charges.

The increase in tax is explained by a change in accounting criteria. In previous year charges for financial transactions were accounted for under other expenses. The increase in amortization and administration expenses is a consequence of higher investments in revolving [balances], technology and ATMs.

Regarding income from fixed equity investments, the stake in the Consolidar Group recorded earnings of ARS19.1 million during the second quarter of 2009. Other income expenses registered a loss of ARS25.9 million in the second quarter of 2009, including a loss from legal injunctions together with provisions of oil contingencies, which was partially offset by lower rates.

Finally, higher figures in the provision of income tax was due to the fact that the Bank has finished performance tax credits generated in previous year. And to the growth shown both, in operated income and in fiscal ratio. The positive tendency in government bonds quotation increased the fiscal earnings and timed the same impact on the P&L statement.

Well, as for activity level, the private sector loan portfolio increased by 5.4% during the second quarter of 2009 and 10% in the last 12 months.

During the second quarter of 2009, growth was driven by an increase in finances to large corporations, partially offset by a decrease in consumer financing, whereas loans to middle-sized companies remained stable. Compared to the previous -- as of June 30, 2008, it is important to highlight that the retail portfolio performance, mainly the increase in car loans and in the credit card financing.

In the corporate segment, advances and in the Company notes showed the greatest increase together with loans related to export operations.

Regarding asset quality, the BBVA Banco Frances continues to maintain the best ratios of the Argentine financial system. As of June 30, 2009 the number of Company ratio reached 1.31%, with (inaudible) level of 164.5%. Current risk management is one of the parameters used to maintain these ratios.

The public sector national government debt without contrary causing link to reverse repo transactions decreased due to the collection of amortization of capital, share adjustment and interest of the [NPA loans and bonds].

After June 30, 2009 public sector national total assets net of volume decreased to reverse repo transactions represented 7.2% of the bank's total assets. Meanwhile, the total exposure including the portfolio of the Central Bank [big fund] notes reached 13.2% of the bank's total assets.

Total deposits decreased 3.4%, compared to the balance registered on March 31, 2009 and increased 28.4%, as compared to the figures reached by the end of June 30, 2008. However, current account balances at the end of June 30, 2009 and as of March 31, 2009 included transitory deposits. Without including discounts, the deposits grew 1.6% in the last three months and 13.6% during the last 12 months.

Time deposits; without considering transitory deposits showed an increase of 17% in the last 12 months, and represented 52.6% of deposits by the end of June 30, 2009. Time deposits decreased 12.9% during the second quarter of 2009, but increased 9%, compared to the second quarter of 2008.

In the second quarter of 2009, total stakeholders' equity increased 6%, mainly due to a gain of ARS10 billion deposits and to the positive performance of public bonds, which resulted in an increase in the unrealized position of public bonds enabled us (inaudible). As of June 30, 2009 we exit our Central Bank regulatory requirements with ARS975.5 million or 33.4% of the Bank's total stakeholders' equity.

Well, thank you very much. We are now ready to answer your questions.

Thank you. (Operator Instructions). First, we'll hear from Federico Rey from Raymond James.

Hi, good afternoon. I would like if you can provide us a type of guidance for the effective tax rate going forward, following the termination of the tax loss carry forward Thank you.

Okay, Federico. I'll do my best, but the problem is there are two situations that are present in the very high effective tax rate that we experienced during the second quarter. The first one is, as we mentioned in the last quarters around April or to some extent May, but basically April we extinguished completely the tax loss carry-forward we had in the past. So essentially, we began the year with a possibility to absorb up to ARS250 million in fiscal gains. Let me stress that we are talking about fiscal earnings and not accounting earnings, because they are completely different as in many countries. So, once we use those 250 million, we will start paying the marginal rate, which is standard in Argentina, which is 35%. So, apart from any other consideration, any other fiscal gain, we have in the future, should go for the 35% marginal and effective rate.

Okay. The second part to consider is that one of the most significant differences we have now as any other bank, between accounting gains and fiscal gains, is the evaluation of public bonds. As you probably know, all our public bond portfolio in accounting terms is valued either in investment accounting or available for sale. However, in fiscal terms the only real bond evaluation is the market. So, when you face the kind of very significant gains we've experienced during the second quarter, obviously, the effective rate is going to go up. Obviously, the opposite is also correct. Why didn't we see this in the past? Because, we had the tax loss carrying forward, right. And so, nobody cared about the effective rate, because we were basically shielded by the carry-forward. So, going forward it's very difficult to assess which is going to be the effective rate, because what you're asking me with that question implicitly is, what is going to be the price of the public bonds in Argentina.

If we consider that most part of the bonds are in investment accounting, the impact is going to be direct if there is additional gains, and in the case of available for sale bonds, which is a minor fraction of the portfolio right now, we are also going to have not a P&L impact but a capital impact, in the sense that a adjustment is done against net loss. But in fiscal terms, the only realizing is the price. Other than that, other than the public bond effect, we are basically going now at the 35% marginal rate.

Okay. Perfect. That's very helpful. Thank you.

(Operator Instructions) Next we will hear from Tito Labarta from Deutsche Bank.

Hi. Good afternoon. Often in the quarter we saw a large increase in the income from securities. It went to like ARS92 million pesos from only ARS2 million previous quarter, so I just want to get sense, is this like a one time gain or what would be your outlook in terms of the income from securities going forward? Thanks.

Okay. Let's recap how we are accounting for public bond gains in the last quarter, basically in the last two quarters. What you are seeing as a "substantial gain," are not really so, because there are two different effects here. First one is that, when you compare with the past, you may recall that we were doing significant amounts of provisioning -- I don't recall the -- name of Spanish right now, the name we're using but (inaudible) just to adopt investment account values to implicit market values or values suggested by the Central Bank. Okay. So we began to take substantial losses in the last -- basically during 2008 and the beginning of the first quarter of 2009, we were also doing that. So the first thing is, we didn't do that in the second quarter, so just by comparison we're going to have an increase in net public bond portfolio results, that's one effect.

The second effect, it seems there was a change in the regulation and the number of the regulation is -- I'm trying to find it myself, is a communication A48-98 by the Central Bank, which was issued after the last public bond swapped in February. Basically, we were not accruing interest in public bonds, in investment accounting. Investment accounting -- and I think our folks have it, so there is no way for us in both those portfolios, those two portfolios available for sales and investment accounts to produce any extraordinary gain, because we're not accruing interest basically in that portfolio in the second quarter.

Thirdly, it shows like a gain in comparison, because we stopped doing all loan provisioning we were doing in the past. The problem is that we didn't make a significant accounting gain, but we did a significant fiscal gain. I don't know if I answered your question clearly.

Well, I guess just to finalize. So you're saying that this would now be sustainable going forward that we can now expect to see interest on these securities?

Well, actually if we continue having the trend we were having up to June 30, and I mean a positive trend in prices of public bond portfolio in general, but specifically, more significant bonds we are having in our portfolio, (inaudible) we will work 20, 20, we will work 20, 18 and 12, 12, those kind of bonds which we have (inaudible) in the past. Obviously, we are going to begin having an excess of provisioning. And in that case, two things -- in that case only, two things are going to happen. One is, we are going to have to reduce that provisioning, therefore having a P&L effect. And second impact, of course, is going to be fiscal impact too and the second impact is that the regulation for non-accruing interest is going to allow us to begin accruing again, because market prices are going to be above our accounting values. So if there is a trend of continuing gain in public bond prices, what you are going to have is accruing again of that portfolio and some kind of adjustment in the level of provisioning going down of course. But for that to happen, we have to have a continuation of the trend we experienced up to June.

I see. So then if the bond prices don't go up then you won't see these gains going forward?

I am sorry I didn't understand the last part.

Yes. So then if the bond prices do not go up and stay stable (inaudible) right now we wouldn't see these gains?

If you have -- you've got stable prices in the values around June, around the end of June, you are going to see in account of the public bond portfolio -- I am not talking about Central Bank notes, which is a different story completely, you are going to see a stable results on the public bond portfolio, yes.

Okay. Great. Thank you very much.

(Operator Instructions). And it appears we have no further questions. I'd like to turn it back over to Mr. Sandigliano for 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.

And that does conclude today's call. We do thank you for your participation.