Banco Bbva Argentina SA (BBAR) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2009 Earnings Call for BBVA Banco Frances. Today's call is being recorded. On the call today we have [Jacqueline Quesich], Planning Manager, Cecilia Acuna, Investor Relations, and Daniel Sandigliano, Investor Relations Officer.

I would now like to turn the call over to Daniel Sandigliano. Please go ahead, sir.

Thank you. 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 and the US [Private Securities]. These forward-looking statements are subject to risk 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 to the US Securities and Exchange Commission. As customary, we will make a brief summary of the most important topics for the four quarters of fiscal year 2009 and then, we will be open to questions.

Let's begin with the macroeconomic environment. During October and November 2009, economic activity continued at the recovery place initiatives in the second quarter of the year. The monthly estimator of economic activity showed an increase of 1.4% compared to the same two months of the previous year.

During the fourth quarter of 2009, discount revenues increased 16% compared to the same quarter of the previous year. Tax collections continued to benefit from social security taxes, VA tax, and income tax through 11.8% and 11.2% respectively in the same period. Primary spending showed an increase of 30.6% in annual trends during the last quarter of 2009.

The Central Bank intervention in the foreign exchange market was a net purchase of $3.9 billion during the quarter. The exchange rate according to the Central Bank flows at ARS3.80 per dollar, a decrease of 1.2% compared to September 30th, 2009. International reserves stock reached almost $48 billion, so with an increase of $2.6 billion during the quarter. The public rate at private banks was 9.8% at the end of the quarter. Downward trend during the quarter was due to the financial system liquidity and the recovery of the most -- the positive intervention from the Central Bank in the foreign exchange market.

Total deposits in the financial system increased 3.4% on average in the fourth quarter of 2009, while private sector of deposits rose 6.7%, which represented an acceleration with respect to the previous quarters' performance. Private sector loans showed an increase of 3.8% during the fourth quarter, reflecting an improvement compared to the first quarter of 2009.

Going to the bank's performance, during the fourth quarter of 2009, BBVA Banco Frances recurring gain reached ARS147 million, 23% higher than the third quarter of 2009. In addition, the bank obtained non-recurrent earnings of ARS114.2 million, generated by the increase in the valued asset valuation. Recurring earnings growth is mainly due to a higher net interest income together with lower provision for loan losses as offset by higher administrative expenses. The next interest margin improvement is a consequence of the private sector income growth and the agreement of interest and TER achievement of all these assets.

During the year 2009, recurrent earnings reached ARS414 million and non-recurrent earnings totaled [ARS4.5 million], increasing the total return on equity for the year 2009 to 28.7%. Improvement relied on the growth of price sector financial revenues and fee income, partially offset by significant growth in the income sector and higher provision for loan losses and administrative expenses. On the other hand, increasing the value asset valuations and the contribution of the cyclical allowances for the loan portfolio generated no recurrent results.

During the year 2009, the private sector loan portfolio grew 7.7% without taking into account loans to the financial sector and net off valuations in allowances for loan losses. It is important to highlight the evolution of credit card financing in the retail segment along with the growth in advances and other loans in both the large corporations and small and medium sized enterprises segments.

The decrease in the rate of growth of lending activities relates to a reduction in the demand for funding, especially in the first half of the year. However, the trend changed in the last quarter of the year, which show a higher rate of growth. Asset policy ratios continue to differentiate BBVA Banco Frances in the financial system. As of December 31st, 2009, non-performing loans represented 1.1% of total loans while the current ratio of non-performing loans with provisions was almost 278%.

In terms of liabilities, total deposits grew 6.6% during the year 2009. Meanwhile, recurring deposits grew 9.4% in the last 12 months. Higher increase was received in deposit, which [increased] 10.8% in this mentioned period. As of December 31st, 2009, such benefits represented 67% of total deposits.

During the year 2009, BBVA Banco Frances maintained adequate levels of liquidities and solvencies. As of December 31st, 2009, total shareholder equities reached ARS2.9 billion, while the excess of capital over the Central Bank regulatory requirements reached ARS1.4 billion, 47.8% of the bank's total shareholder equity.

Well, now let's move onto the P&L. Net financial income, without taking into account the impact generated by the increase in the asset valuations totaled ARS460 million during the fourth quarter of 2009, increasing 8% compared to the previous quarter. Sector income continued to show sustained growth, producing 1.8% compared to the previous quarter. Such increase is mainly explained by the period sector loan portfolio increase, particularly in the more dynamic sectors together with the strong management of funds.

During the fourth quarter 2009, an improvement in interest accrual and TER adjustments of value assets was partially offset by lower income related to foreign currency exchange and from reverse repo operation with the Central Bank. Provision for loan losses decreased 25.4% compared to the recurring provisions of the previous quarter as a consequence of the portfolio asset quality improvement.

The number from end ratio for the private sector decreased almost to last year's ratio, mainly due to a lower performing loan portfolio. During the fourth quarter of 2009, net income from services maintained the same level of the previous quarters as a consequence of higher fees related to promotions in operations with trade and [cars]. However, net income from services increased 11.6% as compared to the previous quarters due to higher business volume.

Clerical fees and also related to foreign trade operations increased compared to the previous quarter and to the same quarter of 2008, due to higher business volume. However, fees related to side deposits saw a growth during the last quarter of the year. During the fourth quarter of 2009, administrative expenses increased by 10.9% compared to the previous quarter and 35.8% compared to the same quarter in 2008. This increase is mainly explained by increased in personnel and internal expenses.

During the fourth quarter of 2009, personnel expenses increased compared to the previous quarter due to new hires in the sales force. Higher seasonal benefits purchased and the increase of voluntary retirement charges. In addition, compared to the fourth quarter of 2008, personnel expenses increased as a consequence of salary increases after an agreement with the labor union in 2009.

The increased insurance expenses compared to the previous quarter is due to higher investment in advertising and promotion together with various car related promotion campaign, an increase in technology network expenses, especially software maintenance and development. Recurring operating income totaled ARS240.3 million, not showing a significant variation compared to the previous quarter and increasing 36.4% over the same earnings of the fourth quarter of 2008.

Finally, the higher figures in the provisions from net income compared to the fourth quarter 2008 is due to the bank completing the process of serving those tax yields generated in previous years during the second quarter of 2009. While as for activity levels, during the fourth quarter of 2009, lending activity growth accelerated, showing an increase of 3.1% in loans to the private and financial sectors.

The expansion was led by credit card car finances and personal loans in the consumer segment together with incumbent loans and other loans in the market segment. In annual terms, credit card financials showed a strong performance in the retail segment and increases in advancing and other loans to both the small and medium sized companies segment and the loss corporate segment.

Regarding asset quality, as of December 31st, 2009, the asset quality ratio was 1.11% and the covered ratio reached almost 278%. During the fourth quarter, asset quality continued to improve. The non-performing ratio for the private sector decreased almost to the same level of a year ago, mainly due to a lower non-income -- non-performing loans portfolio. Other sector national government debt grew 1.3% during the last quarter of 2009 and 9.1% in the last 12 months. Such increase is mainly explained by higher quotations in public phones, partially offset by capital amortization which occur during 2009.

Total deposits rose 6.6% during 2009 and 1.8% in the fourth quarter of 2009. Meanwhile, recurring deposits grew 9.4% in 2009 and 3.0% in the fourth quarter of 2009. The higher increase was received in side accounts which grew [5.5%] as compared to a year ago and 5.3% in fourth quarter of 2009. Recurring deposits in current accounts increased 16.8% in the last 12 months. As of December 31st, 2009, current deposits represented 57% of total deposits.

Timed deposits remained stable during the year, increasing by 1% despite the decrease in the further rate. It is important to highlight that during the fourth quarter of 2009, special and remunerative deposits show an increase of 5.8%, whereas deposits denominated in foreign currencies decreased by 8.9% in the same period.

As of December 31st, 2009, Banco Frances total shareholders equity totaled ARS2.9 million, growing 11.5% during the quarter and 41% during 2009. This increase was mainly due to gains obtained during the period together with an increase in the unrealized valuation due to the positive performance of early bonds accounted in upper level for sales during 2009.

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

(Operator Instructions).

We will take our first question from Tito Labarta with Deutsche Bank. Please go ahead.

Hi. Good morning, Daniel. I just had a couple questions. One in terms of the interest on government guaranteed loans increased quite a bit in the quarter, around ARS90 million. So, [could we] get some more color on that? Is this something that's sustainable? Was it a one-time thing or what actually drove that increase? And then the second question, do you expect any other non-recurring gains from the valuation of public sector assets? Thanks.

Hi, Tito. Good morning. Well, the first part of the question regarding guaranteed loans, the increase during the fourth quarter is due to the higher inflation. So, the -- if this is sustainable for 2010, well, it will be sustainable if the inflation will be higher than in 2009. I am talking about the TER index now.

And regarding the second part of the question, non-recurring gains, well, we don't know. The non-recurring gains will depend on the asset -- public asset valuations. We are not expecting significant gains as in 2009, but, well, the gains will depend on the bonds valuations. And we don't know. Probably, if the government will close a good sub-debt with the holdouts, we will see a recovery in the bond prices. But as mentioned before, we are not waiting -- the recovery that the bonds had in 2009.

Okay, great. And then maybe how about just in January and February? Were there any non-recurring gains that you see so far this year or any more color that you can give on that? Thanks.

Give me a second. Well, Tito, as you know, we can talk a lot this year, but the non-recurring gains, as you see in the bond prices, are not as in the last quarter of 2009 and in the second half of 2009. We are not expecting a significant gain, but we are not expecting a loss.

Okay. All right, thanks. That's helpful. Thank you very much.

Thank you.

Okay. We'll take our next question from [Ricky Sperber] with Citi. Please go ahead.

Yes. How are you, Daniel? In terms of the coverage ratio of NPLs, it's almost at the level that it was pre-crisis or pre -- when the NPL ratios starting going up. Can you give us a sense of if their bank now feels comfortable with where the coverage level is now or if it expects it to increase even further? And then a second question is on fee income. What will you expect for 2010 in terms of fee income? In 2009 it was pretty flattish. Of course, 2009 was kind of a tough year, but if you can give us a sense of what you expect for fee income for 2010?

Hi, Ricky. How are you? Well, regarding coverage ratio on MPL, the bank is very comfortable with this level. We will not expect to increase the coverage ratio because we have a very high coverage ratio and we are very comfortable. Regarding the NPL, we will see an NPL flat for 2010, but the increase in the NPL will depend on the loan growth. If you have a high loan growth, probably we will see an acceleration. But a slight acceleration and a normal acceleration.

Regarding fee income, we forecast a growth of 15% for 2010. We want to follow the inflation and we want to see slight higher the inflation because we want to increase the business volume.

Okay, great. Thanks.

(Operator Instructions).

And we will take our next question from Federico Rey with Raymond James. Please go ahead.

The first one is regarding net interest income and in this question, I would like to know what's your expectation in term of loan growth for 2010? What's your expectation also in terms of [interpretation] spreads with the private sector after the material increase that we saw in the fourth quarter of 2009? And the second question is regarding administrative expenses and I would like to know what's your view in terms of growth in 2010 considering that in 2009, we -- you had some non-recurring expenses related to retirement programs, et cetera. Thank you.

Hi, Federico. Well, regarding loan growth, we are expecting around 20% of loan growth for BBVA Banco Frances, higher than the system. And regarding spreads, we are expecting a compression in margins because of the liquidity and we are not very sure about this compression because we also have inflation in the middle. So in real terms, we will see a compression.

Well, about the administrative expenses, well, as you mentioned, we have non-recurring expenses for retirement in 2009. We are not expecting the level of retirement that we've had in 2009 for 2010. We are expecting lower retirements and lower charges for this issue. So in that, the growth -- the administrative expenses growth for 2010 will be around 15% and 20% -- will be in line with inflation.

Thank you.

The last part, the administrative expenses growth is mainly the personal loans will depend on the agreement with the unions. And in that sense, we are expecting a 15% of agreement of growth.

Okay. Thank you very much.

(Operator Instructions).

We will take our next question from Boris Molina with Santander. Please go ahead.

Yes, thank you. Good morning. Hi, Daniel.

Pardon the interruption. This is the operator. Mr. Molina, please stand by. Ladies and gentlemen, we have lost connection with the speakers. We ask that you please keep your lines connected while we get them back on line. Thank you. You will hear music until we reestablish the connection.

Ladies and gentlemen, we have reestablished the connection with Mr. Sandigliano. We will go back to Boris Molina with your question. Sir, please proceed.

Yes. Thank you. Hi, Daniel. Good morning, everybody. I had a question regarding your capital ratios. You seem to have strengthened in your capital ratio significantly over the last year-and-a-half or two years. So, what could we expect in terms of dividend payouts or what kind of capital ratios would you be looking forward, given that growth is not expected to be dramatically strong? I don't know if you have any guidance on this issue.

Okay. Well, regarding capital ratio, in 2008, we started to make provisions on loan losses, mainly the consumer segment -- credit cards and personal loans, over the Central Bank requirements. We will start to make provisions regarding the estimated loss. That is 2% or 2.5%. That is the reason that we have the coverage ratio too high. But we are, as we mentioned before, we are very comfortable with this level and we will be maintaining in the future.

Regarding the payment of dividend and this ratio, we -- well, as we mentioned in the press release -- not in the quarter, in another letter to the [coverage], we have the intention to pay ARS480 million in cash dividends this year, while we need the approval of the Central Bank and the approval of the stakeholders meetings. In next April, we will have the shareholders meeting and we are sure that the stakeholders will approve the dividend. But we need the approval of the Central Bank. And well, this dividend will not affect this ratio because we have a very high ratio.

Okay. Wonderful. Thank you very much.

You're welcome.

(Operator Instructions). And it appears we have no further questions. Mr. Sandigliano, I will turn the conference back over to you for any closing comments.

Thank you. 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.

Ladies and gentlemen, this will conclude today's conference call. We thank you for your participation.