Banco Bbva Argentina SA (BBAR) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the BBVA Banco Frances Reports Consolidated Fourth Quarter Earnings for Fiscal Year 2010 Conference Call. Today's call is being recorded. I would now like to turn the call over to Ms. Cecilia Acuna. Please go ahead ma'am.

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 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 this factor is contained in BBVA Banco Frances annual report on Form 20-F for the fiscal year 2009 filed to the US Securities and Exchange Commission. As customary, we will make a brief summary of the most important topics of the fourth quarter of fiscal year 2010, and then we'll be open to questions.

Let's begin with the macroeconomic environment. The monthly estimator of economic activity grew 8.3% compared to the same quarter of 2009. The high levels of consumption together with an increase in investment have led the recovery. The primary fiscal surplus of the national public sector was ARS6.6 billion during the October-November period. An increase of 84.6% compared to the same period in 2009.

This strong growth was due to the positive performance of tax collection and other fiscal resources, such as transfers received from the Central Bank and the ANSES results, while primary spending also grew by 44.7% in annual terms during this same period. Inflation, as mentioned by the consumer price index, which is used to calculate the CER adjustment for some troubling assets, accumulated 2.4% during the fourth quarter of 2010, and 10.9% over the whole year.

The Argentine Central Bank intervention in the foreign exchange market was a net purchase of US$3.2 billion during the quarter. Throughout the year, the Central Bank bought US$11.8 billion, a figure only surpassed in 2006. The exchange rate according to the Central Bank closed at ARS3.98 per US dollar, an increase was 0.4% compared to September 30, 2010.

The devaluation of the peso in the year was 4.7%. The international reserve stock reached US$52.2 billion, an increase of US$1.1 billion during the quarter and US$4.2 billion over the whole year. The Badlar rate at private banks was 11.08% on average at the end of the quarter, an increase of 53 basis points compared to the average in September 2010.

The financial system's liquidity during the year allowed the Badlar rate volatility to remain low, with an increase of only 128 basis points since December 2009. Total deposits in the financial system increased 8.9% on average during the fourth quarter of 2010, while private sector deposits rose 9%. Private sector loans showed an increase of 12.7% during the fourth quarter, reflecting an acceleration compared to the performance during the third quarter of 2010. During 2010, both deposit from and loans to the private sector, recovered in line with the improved performance of the economy, growing 29% and 37% year-on-year respectively.

Going to the bank's performance, BBVA Banco Frances registered an outstanding performance during fiscal year 2010, reaching net income of ARS1,198 million, a 66.8% increase over the previous year results. The bank continued to demonstrate its capacity to generate recurring earnings which totaled ARS809 million as of December 31st, 2010. Total return on equity for the year 2010 reached 32.3%. The significant improvement on recurring earning was mainly due to growth of financial revenues from the private sector as a consequence of the expansion in the core business.

Non-recurring earnings totaled ARS388.5 million and were mainly due to the increasing public asset valuation. In line with the increase in consumption registered over the year 2010, private sector loans grew 47% during the last 12 months. Credit card financing, personal loans and car loans led the growth in the retail segment. The small and middle-size company segment also registered an excellent performance during the year, mainly due to discounted and purchased notes, as well as long term finances as leasing and financial loans.

BBVA Banco Frances continues to have the best asset quality ratios of the Argentine financial system as of December 31st, 2010, non-performing loans represented 0.5% of total loans. The bank's deposit from the private sector increased, 25.3% over the year 2010. Meanwhile, during the same period, public deposit decreased 23.1%.

During 2010, BBVA Banco Frances maintained high levels of liquidity and solvency. As of December 31st, 2010, total stockholder equity reached ARS3,746 million, while the excess of capital over the Central Bank regulatory requirements reached ARS1,666 million or 44.5% of the bank's total portfolios equity. Based on the results of the financial period, the board of directors has resolved to propose at the annual shareholders meeting a cash dividend payment of the amount of ARS804 million, which represented 50% of the balances, subject to distribution.

Now, let's move onto the P&L. Net financial income, recurring net financial earnings increased 7.9% compared to the previous quarter, totaling ARS526 million. This growth was principally to an increase in financial incomes derived from our loans portfolio to the private sector. Private sector gains continue to show sustained growth, increasing 8% compared to the previous quarter mainly due to growth in finances to the [marked] dynamic sector together with an excellent management of funds.

Meanwhile, income from public and private securities without considering the impact generated by the increase in the public bond valuations totaled ARS176 million during the fourth quarter of 2010, 11% higher than that recorded in the previous quarter.

During the fourth quarter of 2010, net income from services increased 5.2% compared to the third quarter, and 18.9% with respect to the same period in 2009. These increases were mainly due to the result of higher activity volumes generating higher commissions earned on credit cards and deposit services, an effect that was partially offset by increased expenditures from services.

Administrative expenses decreased 9.7% in the last quarter, and increased 16.5% compared to the same quarter of 2009. The negative variation with respect to the previous quarter is the result of a decline in personal expenses, partially offset by an increase of 5% in general expenses, charges related to the voluntary retirement plan were accounted for as personal expenses during the previous quarter.

As of December 31st, 2010, the bank and its subsidiaries, except the Consolidar Group had 4,588 employees. The branch office network totaled 271 offices. As for the activity level, the private sector loan portfolio grew 47% in the last 12 months, and 16.6% during the fourth quarter, exceeding ARS15,000 million recorded at December 31st, 2010. Accompanying the boom in consumptions, financing to consumers grew ARS2,000 million in the last year, representing an expansion of 43.6%. Such increase was due to the excellent performance of credit cards, personal loans and car loans.

As a result of the strategy implemented in the middle market segment, the loan portfolio grew 93.8% during the year. Discounted notes and long term financing, specifically leasing and financial loans supported that expansion. Finally, the corporate segment also resisted an increase of 28.2% in its portfolio during the year 2010 mostly due to the increases in advances and other financial loans.

Regarding the public sector debt, total exposure to public sector national treasury's debt did not show significantly changes during 2010. As of December 2010, public sector national treasure assets, net of holdings linked to reverse repo transactions, represented 10.6% of the bank's total assets. And total exposure to Central Bank bills and notes represented 9.4% of the total assets.

In terms of liabilities, total deposits exceeded ARS22,400 million, increasing 22.9% during the year and 3.8% in the last three months. Sight deposits increased 22% compared to the previous year and remained at similar level compared to the third quarter of 2010. With sight deposits, the increase of saving account balance stood out with an increase of 25.9% in the year and 11% during the fourth quarter. Time deposits showed a significant growth, increases of 23.5% during the last 12 months and 10.7% during the fourth quarter.

Total shareholders' equity totaled ARS3,746 million, increasing 28% during the year and 13% during the last three months. The increase was due to gains obtained during the period, together with a decrease in the unrealized valuation due to the positive performance of public bonds accounted in available for sale.

By the end of 2010, the excess of capital over the Central Bank regulatory requirement reached ARS1,666 million, 44.5% of the bank's total stockholder equity, maintaining its excellent solvency level. On the same date, the capital ratio reached 18.2% of the asset adjusted to risk. Thank you very much. We are now ready to answer your question.

Thank you. The question and answer session will be conducted electronically. (Operator Instructions). And we'll take the first question from Tito Labarta with Deutsche Bank.

Hi Cecelia, thanks for the call, just a couple of questions. Just first, loan growth has been coming in pretty strong, just want to get a sense of how you see that going forward, if it can continue at this pace or when does it start to slow down, so you can maybe give some guidance on what kind of loan growth you expect for 2011.

And then also on the back of that, given the strong loan growth we've seen, do you think there could be further improvement in asset quality or when do you think you may start to see some deterioration in asset quality just given the strong loan growth? And then finally, how does that play out in terms of provisioning, going forward? Do you think the level of provisions we saw at this quarter is kind of what we should expect going forward or if you can maybe give us some guidance on that? Thank you.

Okay, hello Tito, how are you? Well, the first question about the loan growth for 2010, we are expecting, as we said in the last conference, in level of growth in 30%, 32%. It's an electionary period for us, and so we don't expect so good levels of growth in this year. And regarded to asset quality, yes, we kind of expect a slight deterioration in the ratio, and we think that is very, very low, and it's not an issue for us.

And what about in terms of provisions?

We are in line with the expected loss in terms of provisions, so for the retail loans, we are provisioned more than the required of Central Bank in line of (inaudible) [12%]. So, we expect a little increase, but maintain the levels as we have now.

So, then do you think your coverage ratio would remain around -- you know, that's pretty high right now, almost 500%, is that kind of a sustainable level or do you think that that could come down?

One time in this level?

They could remain around that level?

Yes.

Okay. And then if I can maybe just get a little more color in terms of -- which segments would drive the loan growth, and then also in terms of the asset quality, when you say a slight deterioration, because you know, it's improved quite a bit, right, so just want to get -- does it go back to like the 1% we saw in the beginning of the year or just maybe a slight deterioration from this 0.5%. If you can give -- maybe just give a little more color on that? Thanks.

The segment that we [lead] the expansion in 2011 should be the same, the retail and middle market segment. And in related to the non-performing ratio, we think that's from 0.5%, and we have now to 1.8% -- 0.8% next year, but not more than that.

Alright, thank you very much.

Welcome.

(Operator Instructions). We'll take the next question from Boris Molina with Santander.

Yes, thank you very much. Good morning Cecilia, thanks for the call. One question is, what are the macroeconomic estimates that you are using to support the expectations of 32% loan growth in terms of GDP growth, Badlar, and where do you expect a similar rate of growth for the system or you will expect the -- to outperform the system this year?

Well, for GDP growth, we have an estimation of 4.6% for 2011, and we expect growth higher than the financial system in terms of strong recovery and looking for reach higher market share.

Okay, and what is your expectation for kind of like the average Badlar rate if you have any idea, chose to stay in current levels, you expect it to go up?

We have an expectation of a slight go up but near to 13%.

Okay. And could you give just an idea what could we expect from your costs and fees income? You know, we've seen a very strong growth, and obviously there is a component of inflation, so how much of the increase in fees, this year and next year, could we expect from your transactions and how much is it actually you are increasing fees, given the current inflationary pressures?

And also on the cost side, and should we expect a cost to grow with inflation or what is your inflation expectation for the year? Are you talking around 25% or lower inflation for 2011? You know, how could we see that cost equation developing?

Okay, in terms of fees, we are expecting a level similar to the inflation, and we expect an increase of 25%. And in terms of cost, it depends on the agreement with the labor unions and the budget for us is 25.8%.

Sorry, could you repeat that? I missed that last number.

25.8%, we expect the labor union agreement in that level.

Okay, and just one -- just a couple of details. There was a voluntary retirement plan in the third quarter. How much was the -- what was the size of this extraordinary cost? I couldn't find it in the previous quarter.

It was ARS100 million.

Okay. And have you made an announcement or a proposal for a dividend payment for the shareholders meeting in March or should expect something --?

Yes. No, in March, the shareholders meeting is in March 31st I think.

And has the dividend proposal already been set or is this something you're going to announce later on?

No, the proposal is during the shareholders meeting and then we need the approval of the Central Bank.

Okay, so there's no guidance on the dividend payment yet?

No, no.

Okay, wonderful. Thank you.

You're welcome.

(Operator Instructions). And we'll take the next question from Federico Rey with Raymond James.

Hi, good morning, just a follow-up question on the dividends. When do you expect to receive the authorization from the Central Bank, once you approve this in the shareholders meeting?

I don't know. I don't know. I think that last year in 2010, we pay in June and we expect later than that, but I don't know.

Later than June?

No, no, sorry, early, pardon.

Okay, perfect. Okay, thank you.

And we'll take the next question from Tito Labarta with Deutsche Bank.

Hey Cecilia, just a follow-up question on -- just following on Boris' question regarding the Badlar rate. How do you see that would impact your net interest margin going forward? It remained flat in the quarter despite the strong loan growth. So just want to get a sense of how we should expect the margin going forward? And then another question also on the -- the tax rate was kind of low this quarter around 18%, so what should we expect for 2011 in terms of the tax rate?

Okay. First the tax rate, the thing was that in 2010 we have a reversal provisions in terms of -- in fiscal terms, and because of that, we have a low rate, but it should be in terms of 35%. And the following question, the net interest margin?

Right.

We don't expect -- we expect only a slight increase in this year, but not very high in terms of recurring margin (inaudible - multiple speakers).

And you can maybe -- how does the higher rates impact you? Would they impact more on the funding costs or would you -- or more on the asset side? Maybe just give a little color on the impact of interest rates on your margin.

Not the funding cost, because we have an important amount inside deposits, so it's not in that side. In the assets side, we have all the promotions in credit card that impact negatively in the margin.

And that impacts your margin or your cost in the promotions?

A part of that is cost impact in the margins.

I see, okay, thank you.

You're welcome.

And we'll take the next question from Boris Molina with Santander.

Yes, just a follow-up question on the margins discussion we're having. What are you seeing in terms of competitive pressures on spreads? Are you seeing that the environment has become increasingly more competitive, are you seeing pressure in corporate, middle market or in which spreads you -- are you seeing margin pressure, if any? And what would -- should we expect that if rates go up, and you have the very strong core deposit position that would help margins, but then your guidance for margins remaining stable means that you probably experience some margin pressure on your lending spreads? That would be [is that right]?

Yes, yes, we say in terms of the net interest margin, we expect only a slight increase, not very high, and in terms of our competitors under pressure, in the middle -- in the retail segment, it's very strong and mainly in credit cards. And we expect the same for this year.

Okay, excellent, thank you.

(Operator Instructions). And it looks like there are no further questions at this time. I'll turn the call back over to Ms. Acuna.

Okay. Well, thanks again for joining us, and should you have any further questions, don't hesitate to contact us in our office. Thanks.

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