Banco Bbva Argentina SA (BBAR) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third quarter 2009 Earnings Conference Call for BBVA Banco Frances. Today's call is being recorded.

I would now like to turn the call over to Mr. Daniel 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 third quarter of fiscal year 2009 and then we will be open to questions.

One, let's begin with the macroeconomic environment. During July and August 2009 the economic slowdown registered some signs of recovery. The monthly [estimator] of economic activity decreased by 4.5% in July but increased by 1.1% in August.

Similarly, the industry and construction sectors slowed during the period. During the third quarter of 2009 fiscal revenues increased 6.6% on average year-over-year. The decline in economic activity persists and has had a negative impact on tax collection partially offset by taxes on social security.

In the third quarter of 2009 the primary pickup or plus of the national public sector, decreased by 96.4% compared with the same period of 2008, mainly due to an increase in primary expenditures.

The Central Bank Intervention in the FX market was a net purchase of $855 million during the third quarter of 2009. The exchange rate, according to the Central Bank, closed at ARS3.84 per dollar, an increase of 1.25% compared to the end of the second quarter of 2009.

The international reserve stock showed a decrease of $678 million during the quarter. The dollar rate at private banks in the month of September closed at an average of 12%. It showed a little downward trend during the period and due to the liquidity provided by the FX markets.

Total private deposits in the financial system increased 4.2% on average in the third quarter of 2009, influenced by dollar deposits, which grew 7.6%. Public sector loans decreased 0.2% in the third quarter of 2009, reflecting the adverse condition of the economy.

Going through the Bank's performance, during the third quarter of 2009 BBVA Banco Frances obtained a recurring gain of ARS115 million, sorry [ARS19 million], and extraordinary earnings of ARS190 million generated by the increase in the public bonds valuation partially offset by the consideration of anti-cyclical allowances for the loans portfolio.

Recurring earnings continued to show sustained growth. The improvement in net interest margin is due to higher income from the private sector loan portfolio together with a lower cost of funds. However, in recent weeks a decline in assets' interest rates was noted. Meanwhile, fee income continues to increase due to a higher business volume.

During the third quarter of 2009 financing to small and medium entities grew, mainly because of discounted notes, while in the corporate segment an increase in advances and a slight drop in export operations were recorded.

Regarding asset quality, the Bank continues to maintain the best ratios of the Argentine financial system. Recurring deposits grew 4% in the last three months and 9.4% in the last year. As of September 30th, 2009 time deposits, without taking into account transitory deposits, represented 52.5% of such funds.

As in previous quarters, the Bank continues to have an adequate level of liquidity and an important level of solvency. As of September 30th, 2009 the capital ratio increased to 15.9%.

Well, now let's move on to the P&L. Net financial income, without taking into account the extraordinary impact originated by the increase in public bonds valuation, totaled ARS426 million, a 10.4% increase compared to the previous quarter.

It is important to highlight that private sector income maintained a positive trend increasing by 11.7% compared to the previous quarter. Such increase is mainly explained by the Bank's loan portfolio structure, which has a 44% share of consumer loans over total loans and by the excellent management of funds, which kept a low cost of funds.

Provision for loan losses, not considering the anti-cyclical charge, totaled ARS41 million, decreased 12.8% as compared with the previous quarter and grew 36.6% compared with the same quarter of 2008.

Net income from services continues to show a steady growth as a consequence of a higher volume in the card business compared with the previous quarter credit card fees and those related to foreign trade operations boosted this increase.

Compared with the third quarter of 2008, the increase is mainly explained by a higher level of activity, mostly in the construction segment, which is reflected in higher fees related to checking accounts, credit cards and insurance commissions, in addition to those linked to foreign trade operations.

Administrative expenses grew 8.2% in the last three months and 36.5% compared with the same quarter of 2008, mainly due to an increase in personnel expenses. During the third quarter personnel expenses increased 9.2% as a consequence of new hires in the third quarter together with an increase of voluntary retirement charges.

General expenses increased compared with the previous quarter due to a higher investment in advertising and promotions, particularly those campaigns related to credit cards and a higher level of the (inaudible) in the promoting of Frances.

It is important to mention that the recurrent (inaudible) ratio decreased to 58.2% during the third quarter of 2009.

Operating income [while] taking into account extraordinary gains totaled ARS240 million, an increase of 22% compared to the previous quarter and an increase of 82% compared to the same quarter of 2008.

Regarding income from equity investments, the stake in the Consolidar Group recorded a small loss during the third quarter of 2009. Other expenses registered a loss of ARS47.7 million in the third quarter of 2009, including a loss from legal injunctions together with provisions for other contingencies, which were partially offset by recovered credits.

Finally, the higher figures in the provision for net income tax are due to the positive tendency in government bonds quotations. Additionally, the Bank has completed the process of serving those [trailers] generated in previous years.

As for activity levels, as of September 30th, 2009 the private sector loan portfolio totaled ARS10 billion without showing a significant variation compared to the previous quarter and in the last 12 months. During the third quarter of 2009 financing to small and medium entities increased, mainly driven by discounted loans, while in the corporate segment an increase in advances and a slight decrease in the export operations were recorded.

Consumer finances reflected a slight decrease, while the lower mortgage portfolio personal account loans were partially offset by an increase in credit card financing. Regarding asset quality, the Bank continues to maintain the best ratios of the Argentine financing system. As of September 30th, 2009 the non-performance ratio had reached 1.25% with a coverage ratio level of 251.7%. Current risk management is one of the parameter factors, which allows the Bank to maintain these excellent ratios.

During the third quarter of 2009 the public sector national government debt increased 13.9% due to the increase in the quotations. The Bank reduced the amount of allowances by ARS390 million registered for the rate of devaluation of public assets. In addition, the positive evolution in the public security quotations increased the available for sale portfolio valuation with [counter fund] net worth.

As of September 30th, 2009 the unlisted securities book value, net of allowances, corresponded to the estimated percent value considered by the Central Bank for this instrument. During the last three months recurring deposits grew 4% and 9.4% in the last year.

Time deposits, without considering transitory deposits, grew 13.5% in the last 12 months and represented 62.5% of recurring deposits as of September 30th, 2009. Time deposits increased 4.8% in the last three months and 5.4% in the last 12 months.

If we consider recurring deposits denominated in pesos, they increased 3.2% during the third quarter of the year, while they remained stable in the last year. As for recurring deposits denominated in foreign currency, they increased 6.6% during the third quarter of 2009 and 55.7% in the last 12 months. Meanwhile, nominal recurring deposits in foreign currency grew 5.3% in the third quarter of 2009 and 26.8% in the last 12 months.

Finally, during the third quarter of 2009 BBVA Banco Frances total stakeholders' equity increased 16.9% during -- due to a gain obtained during the period and by a decrease in the unrealized valuation difference. As of September 30th, 2009 the excess of capital over the Central Bank's regulatory requirements reached ARS1,170 million, or 44.6% of the Bank's total stakeholders' equity.

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

(Operator Instructions). And we'll take our first question from Daniel Abut with Citi.

Daniel, a couple of questions, in terms of the expansion of the loan portfolio, we started to see some signs of consumer loan expansion in the third quarter and even though for the portfolio as a whole you didn't show much because of more sluggish commercial loan growth. What should we expect for next year? What are you working with currently, both for the portfolio as a whole and for consumer loans in terms of loan growth guidance? And secondly, provisions you did explain in your remark that you want to exclude the voluntary [anti-cycle] confirmation hearings headed to create this quarter. The value of provision was about ARS40 million something. Is that a more normalized provisioning level that we should assume per quarter into next year or what guidance would you give us on the provisioning front?

Daniel, this is Martin Zarich. Let me answer your questions. The first one about the loan growth perspectives going into 2010, I would say that we are trying to be cautious. Early my answer to that question a couple of months ago would have been more negative than what it's going to be now.

Right now my vision is or our vision at Banco Frances is that we should expect for relatively similar behavior on the consumer side and on the corporate side, probably slightly higher on the corporate side for 2010. Our budget reference for 2010 is close to 19% growth in total loans during 2010. That is right now a rather optimistic figure, having seen what we saw during the last two quarters but on that respect we are counting on an increase in the level of activity of the economy for 2010.

The composition of that would probably be below 19% for on the consumer side on the [new] market side and probably slightly above 19% for the corporate sector. I am talking basically about peso denominated loans, which are 80% of the total [variance] and our view on the dollar side is rather pessimistic right now. That -- it was refers to loan growth.

Going to the provision for loan losses, as you said correctly, there are ordinary ones and extraordinary ones on this last quarter and both numbers are very clear in page three of the Press Release. The level of the standard provision for loan losses of ARS41 million I would say it's a rather stable number for me going forward but you only have to keep in mind that when you look at the variation of the loan portfolio during the third quarter the level of variation has been substantially low.

That implies that generic provisions coming from the simple growth of the loan portfolio were basically non relevant so, if we grow more on the level I was discussing in your first question, obviously you have to add to these ARS41 million stable number or rather stable number, you have to add your [late] provisions according to regulations. But other than that, other than the strings on the loan portfolio I would expect this to be a rather stable number for 2010.

Thank you, Martin. Just as a follow-up because what I was also trying to lead into is that you have such a coverage level now to have the 50% that could you -- you could provision less next year if you wanted to and consume a bit of this cushion. Should we factor that or the intention would be to keep the coverage level at the current very high levels of 250%?

Well, Daniel, it's not the first time we are at this level of coverage. Actually if you look at September 2008 we were basically at the same level. We were always rather regularly committed to good levels of coverage, probably because we have the asset quality we have and then because we've been increasing generic provisions as we went along. Then we had a temporary increase, which was basically some degree of reallocation to fund all these generic provisions for public bonds, which we discussed in the end of 2008. And now, as the situation evolves and the public bond prices evolve, we've been able to recover that provisioning and we feel really very comfortable at these levels and I don't anticipate that we are going to produce a significant change in this unless we had a significant change in the level of asset quality.

Clear enough. Thank you.

(Operator Instructions). Federico Rey, Raymond James.

My question is regarding your payout policy. I know that you don't have a written payout policy but I would like to know what we should expect going forward considering the small cash dividends you paid on last year results and what we should expect going forward. Thank you.

Okay, Federico, a tough question because first, you are right we don't have a written policy. We never have. We've been -- many things have happened during the last ten years in order to be able to establish a constraining policy, so it is clear that when we began being able to pay dividends in -- I don't recall exactly but -- probably 2005 more or less, we began doing so and we were -- we kept increasing payout ratios consistently up to I believe something like 70% in 2007.

Then 2008 marks the interruption of this policy in the sense that we were obviously, as other banks too, hit by the fact that all the [property] and the valuation of public bonds and some slight changes, you know, regulations in Central Bank, forced us to reduce cash dividends because of valuation adjustments for dividend purposes only. And that was a reality of the 2008 cash dividend policy for us, which was close to 10% plus obviously.

Going forward, obviously we are not in force of [weakened] policy. Second, we intend to increase clearly the level of cash dividend that we produced in the last year. This should be obvious.

Third, we don't have at this public bond pricing structure, we don't have the restrictions right now that we had as of December 31st. If we had to compute our ability to pay dividends right now we could pay, technically speaking, whatever we like. Obviously we are going to have restrictions in the sense that we will never go above what we -- where we were in the past and we will try to see other regulatory considerations that the Central Bank could or not impose in the future.

So our target is to increase substantially. Our target is to go to levels of dividend payment in the range of the last two relevant years, I mean 2007, 2006, 2005, try to go to that period, obviously subject to the constraints of the relation and of public bond valuations.

Okay thank you very much. That's very helpful.

And, with no further questions in queue, I'd like to turn the call back over to Mr. Sandigliano for any additional or closing remarks.

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

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