Banco Bbva Argentina SA (BBAR) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the BBVA Banco Frances Reports Consolidated Second Quarter Earnings for Fiscal Year 2011 Conference Call. Today's call is being recorded. I would now like to turn the call over to Ms. Cecilia Acuna. Please go ahead.

Thank you. Good morning, everybody. First of all, let me stress that some of 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 these factors is contained in BBVA Banco Frances annual report on Form 20-F for the fiscal year 2010 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 and fiscal year 2011, and then we'll be open to questions.

Let's begin with the macroeconomic environment. The Argentine economy continued to show growth during April and May 2011. On average, the monthly estimator of economic activity grew 1.8% compared to the first quarter of the year. Inflation, as measured by the (inaudible) Consumer Price Index, which is used to calculate the CER adjustment for some troubling assets, increased 2.3% quarter-over-quarter and 9.7% year-over-year, in the second quarter accumulated 4.6% during the first half of 2011.

The primary fiscal surplus of the national public sector was ARS6.1 billion during the second quarter of 2011, an increase of 24.8% compared to the previous quarter. Total public sector revenue grew 18.5% quarter-over-quarter in the second quarter, while fiscal expenditures grew at the slightly lower rate of 18.1% in the same period.

The accumulated trade balance in the second quarter ended with a surplus of $3.9 billion, 123.7% higher than the first quarter of 2011, but 25.1% below the balance obtained in the second quarter of 2010. The exchange rate (inaudible) closed up 4.11 Argentine basis per US dollar on June 30, 2011, an increase of 1.4% compared to March 2011.

The stock international reserves increased by $397 million during the second quarter, totaling $15.7 billion at June 30, 2011. The Badler rate at private banks averaged 11.3% in the last month of the second quarter, an increase of only 12 basis points compared to the average of March. The liquidity of the systems continues to be relatively high during the quarter, leading to a low volatility of the Badler rate.

Total deposits in the financial system increased 6.7% on average in the second quarter of 2011. Private sector deposits grew 7.8% in the same period, and slightly higher than the quarterly growth of the first quarter of 2011, while private sector loans show a high increase of 8.9% in the same period.

Going to the bank's performance, the bank's net income reached ARS197 million at the end of the second quarter of 2011, and totaled ARS382.5 million in the first six months of the year. Net interest income from the private sector grew 12% in the second quarter, up 42.1% over the last twelve months. Such increase was based on the significant growth in funding to the most profitable segments, small and medium-sized companies and individuals.

Private sector on portfolio increased by ARS2.1 billion to ARS18.4 billion in the second quarter, representing a 12.5% increase compared to the first quarter and 15, 7.5% in annualized terms, maintaining the important pace of growth over the last quarter and following the expansion in consumption.

BBVA Frances remains a bargain in the Argentine financial system in terms of asset quality. As of June 30, 2011 the non-performing ratio reached 0.49% with a coverage ratio of 426.6%.

The bank's total deposits increased 8.5% during the second quarter and 19.9% in the last 12 months. BBVA Frances maintained adequate levels of liquidity and solvency. At the end of June liquidity assets represented 35.6% of the balance reported, and the total capital ratio reached 14.7% of weighted risk assets.

On June 30, 2011 other shares of Consolidar Compania de Seguros sold by BBVA Frances and BBVA (inaudible) to Grupo Dolphin Holding were transferred. Now let's move on to the P&L.

The significant increase in the private sector loan portfolio is reflected in hiring interest impact, generated an increasing net financial impact of 12% and 42.1% compared to the previous quarter and the same quarter of 2010, respectively.

Income from public and private bonds includes nonrecurring income on the related variation of the valuation. In the analyzed period such results registered a loss of approximately ARS70 million for the quarter.

Regarding the results from public and private securities it's important to note that since March the 1st, 2011, according to [sensor] bank communications the presentation [per steedia] or is with public assets were [radeesta] changed, pending the available for [secatilatity] no longer valued. Consequently, the unrealized valuation of difference generated by high portfolio was recorded in the income estimate.

During the analyzed period the result of our [ex security] includes the losses of all generated by the decreasing valuation for an amount of approximately ARS70 million per quarter. And the first quarter of 2011 consisted again for ARS37,000 from the sale of public bonds, whereas during the second quarter lower income from this are not issued by the Central Bank was recorded due to decreased holdings. The same also compared with the second quarter of 2010.

Net income from services increased 12.9% during the second quarter of 2011 and 37.6% compared to the same quarter of 2010. The increased activity in credit lending as a result of increased consumption was reflected in higher credit card fees and insurance compared to the previous quarter.

Additionally, service charge expenses also grew as a result of promotions associated with credit and debit card purchases. Compared to the second quarter of 2010 the variations are mainly due to growth in the same segments, in addition to higher fees related to foreign trade and currency exchange.

Administrative expenses did not produce a significant variation compared to the previous quarter, but increased 20% compared to the second quarter of 2010. At the end of March personal expenses included provisions associated with the increasing salaries and social security expenses. Such increase resulted to be remunerative beginning on May 2011, so the quarter resisted a decrease of 7.1%, but compared to the same quarter 2010 it grew 14.2%.

Growth in general expenses compared to the previous quarter was mainly due to an increase in advertising, advertisement and promotion expenses due to the [personal simply] campaign launched during the quarter, as well as higher taxes generated by it. Similarly, general expenses ought to increase compared to the second quarter of 2010, mainly due to increases in taxes, organization and development expenses and amortization related to higher expenses associated with changing the branch of this image.

At the end of June the bank and its subsidiaries, except the Consolidar group, have 12,629 employees. The branches of this network totaled 267 offices, including 214 consumer branch offices and 27 brand offices specializing in the middle market segment.

The corporate banking includes seven business units grouped by industry. Complemented industry with the network the bank has 15 in Company branches, four branch offices for the large corporate institutions in the (inaudible) and two points of sale, 650 ATMs and 693 with deposit boxes.

As regards to the activity level the private sector loan portfolio totaled ARS18.4 billion, an increase of ARS2.1 billion, or 12.5% compared to the previous quarter, and ARS6.7 billion, or 57.7 compared to the same quarter of 2010.

During the second quarter all segments maintained a growth rate of the previous quarter, showing an excellent performance. The small and medium-sized companies' portfolio increased ARS475 million pesos. That is 12%. The large corporates segment increased ARS627 million. That is 11%. And the retail segment increased ARS826.4 million. That's 12%.

Compared to the second quarter of 2010 the significant economic growth was reflected in the expansion recorded by the private loan portfolio, mainly as a consequence of the excellent performance on loss to [in divvy] and to businesses. As for the public sector debt exposure to the public sector's National Treasury showed no significant variations compared to the previous quarter.

The bank's portfolio of Central Bank bills or notes decreased 30.9% during the quarter, but increased 13.3% compared to the second quarter of 2010. At the end of June public sector National Treasure assets represented 8.3% of the bank's total assets and the total exposure to Central Bank bills or notes make up, or increased or around (inaudible) represented 6.1% of the bank's total assets.

In terms of liabilities total deposits reached ARS26.2 billion, an increase of 8.5% and 29.9% compared to the previous quarter and to the first quarter of 2010, respectively. During the first quarter of this year both sight deposits and time deposits ready to go increased 10.2% and 5.4%, respectively. And compared with the same quarter of 2010 sight and time deposits grew 27.9% and 32.5%, respectively.

The bank's total shareholders' equity totaled ARS3.3 billion, representing in excess of ARS1.1 billion over the Central Bank capital requirements. At the same day the capital ratio reached 14.7% of assets adjusted to risk. During the second quarter the bank paid its shareholders a cash dividend of ARS804 million.

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

Thank you. (Operator Instructions). We'll take our first question from Tito Labarta from Deutsche Bank.

Hi. Good morning or afternoon. Thanks for the call. Just two questions, just on the sale of Consolidar I just wanted to get and what was the net impact of that gain. I know the tax rate increased quite a bit in the quarter, but could just say what the net impact was after taxes? I wasn't able to define that.

And then the second question is just in terms of provisions. And you had some reversals in the quarter. So I just want to get a sense going forward kind of what to expect. Maybe do have a target for your coverage ratio, or how should we think about the provisions going forward? Thank you.

Okay. Hello, Tito. Respect of the sale of Consolidar to order of it, Tito, the gain for the quarter was ARS21 million. The thing was that the fiscal impact is due to the fiscal valuation of the participation. So because of that the fiscal gain is so much higher and we have something like ARS80 million in paid in tax coming from this sale.

And regarding to provisions the bank more into in its portfolio for equity, so we are making now provisions over the retail portfolio of 2.5% and the commercial loans in 2%. Before of that we were making a provision for 25% for the total loan portfolio.

But it's if I look at provision just on, for example in the first quarter, provisions to loans were only around 1%. And last year they were 1.3%, but are you saying now that you're going to 2% to 2.5%, or --?

Two and a half in the retail new loans because personal loans per loans and 2% in the rest of the portfolio in the commercial loans. In the first quarter we were making provision for 2.5% portfolio, total portfolio. So because of that we made the reversal of provision in the second quarter.

Okay. Are you looking at the loan loss reserves to loans? Is it 2.5%?

Sorry?

I just was is that the provisions on the income statements that you're looking at? Because when I look at provisions to average loans on the income statement in the first quarter it was 1%.

No. 1% is the requirement of the Central Bank. We make higher provisions in order to the expected loss. Because of that with the monitoring of the portfolio we realize that we are making higher provisions than we need for the expected losses on this in order to the Spain bank's regulations too.

Okay. So I guess the way to look at it is the reserves to loans should be between 2% to 2.5%, right?

Yes.

I see. And is there like a target coverage ratio that you have?

The coverage ratio should maintain at this level.

Around a little above 400?

Yes.

Okay. All right, thank you, Cecelia.

You're welcome.

We'll hear next from Federico Rey with Raymond James.

Hi. Good morning, everybody. I have two questions. This one is a follow-up question on Tito's question about asset quality. My question here is if this is the change in the policy it has a onetime effect, or we can continue seeing the reversal of provisions going forward depending on the analysis of the expected loss? That's the first question.

The second one is you -- we saw a decline in personal expenses quarter-on-quarter, and according to what you said in the press release this is the result of the provisions you created in the previous quarter. I would like to know to maybe kind of give us an idea of the size of the provisions you did in the first quarter. And what should be the year-on-year increase in the personal expenses by the end of the year? Thank you.

Okay. Well, regarding to the provisions we make this morning turning over the portfolio, but the idea is to maintain this new valuation in some way in order to make provision for 2% in the commercial loans and 2.5% in the retail segment. So we don't expect new reversal of provisions in the short term.

Okay.

And the other one, well, the -- okay. And the bank make provisions in the salary increase. Considering the -- let me see. It's first half. Including the social security expenses, but I finally when the agreement signed the increase in salaries became when relative and after May, so these things that we make higher provisions than we did. Yes?

Okay. But in the end of the year --

Of a year.

Okay, sorry.

Yes. The increasing salaries in the total year should be something like 26%.

Okay, similar to the increase in the salary agreement, okay.

Yes, yes.

Okay, excellent. Thank you.

You're welcome.

(Operator Instructions). We'll now take our next question from [George Tradino] with Morgan Stanley.

Hi, Cecelia. How are you? Just a very quick question --

Fine, and you?

Good. Thank you. Just a very quick question on loan growth, what are you expecting for the rest of the year? It has been really sound and solid in the first half, so I just wanted to get a sense of what are you expecting for the second half?

Well, we don't expect this pace of growth because the relations in the coming months and so on. So we in the last 12 months we grew 57% in the loan growth, and at the end of the year we expect something like more than 35% of it won't last, our last budget.

Okay. Thank you.

You're welcome.

(Operator Instructions). We'll hear next from [Nicholas Chielva] with IDUA.

Hello. Good morning to everybody and good morning, Cecelia. My -- I have two questions. One is just because I didn't understood you correctly. Did you say that the tax triggered by the sale of Consolidar Seguros de Retiro was of ARS80 million?

Yes.

Okay. Then the other question is about the nonrecurring losses on securities. Are the securities -- which are the securities that have triggered these nonrecurring loss and do you still have them in the portfolio for the bank? Or have you sold them?

No. We have in the portfolio of the bank. Many they go back to and to 20 and they were now 14.

Okay. Thank you very much, Cecelia.

You're welcome.

And, Ms. Acuna, it appears that we have no further questions. I'd like to turn the call back over to you for any closing remarks.

Okay. Well, thanks again for joining us, and if you have any further questions please contact us in our offices.

And this does conclude today's conference call. Thank you for your participation. You may now disconnect.