Banco Bbva Argentina SA (BBAR) 2011 Q4 法說會逐字稿

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

Thank you. Good afternoon, everybody. First of all, 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 in the U.S. 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 U.S. Securities and Exchange Commission.

As customary, we will make a brief summary of the most important topics of the fiscal year 2011 and, then, we'll be open to questions.

Let's begin with the macroeconomic environment. The Argentine economy showed a significant dynamic during 2011, maintaining the pace of growth of 2010. The monthly estimator of economic activity accumulated an increase of 9.4% in the first nine months of the year, even though 2011 was an electoral year and the international environment was complicated. Growth was [driven] by investments and private and public consumption.

Inflation, as measured by the Greater Buenos Aires Consumer Price Index, which is used to calculate the CER adjustment for some sovereign assets, accumulated 9.5% over the whole year, decelerating compared to 10.9% registered in 2010.

The primary fiscal surplus of the national public sector has reached ARS4.9 billion. Total public sector revenues grew 28%, while fiscal expenditures grew at the higher rate of 32.1%, during the same period. Significant growth in both pensions and transfers to the private sector were the most important determiners in the performance of fiscal expenditures during 2011. The most important taxes -- [transaction], VAT, and income tax -- were the main contributors to the fiscal results.

The trade balance for 2011 reached $10.3 million (sic), 11% lower compared to the end of 2010. [Our] exports grew 23.7%, year over year, to $84.3 billion, while imports increased by 30.8%, to $73.9 billion.

The exchange rate closed at (technical difficulty) per US dollar, on December 30, 2011, increasing 8.2%, compared to the rate at December 30, 2010.

The stock of international reserves dropped $5.8 billion in the year, ending at $46.4 billion by the end of December. The Badlar rate at private banks averaged 18.7% in the last quarter of 2011, an increase of 784 basis points, compared to the average of the same quarter of 2010. After a [peak of 30%] in November, the rate [steadily] declined to 14.5% in the first month of 2012, which could be the new average.

Total deposits in the financial system increased 22.2%, on average, in 2011. The private sector deposits grew 28.5%, affected by a [trail] of deposits denominated in [five] currencies, which took place mainly during November. Some situations (inaudible) during December 2011.

Private sector loans continued with a significant pace of growth, beating budget [line] in 2010, influenced mainly by the increasing economic activity and consumption. It grew 48.3%, and the most dynamic segments were retail loans and commercial lending.

Going to the Bank's performance. 2011 was a very good year for BBVA Frances. The net income totaled ARS1,005 billion at the end of the year. The ability to increase recurring income, based mainly on intermediations with the private sector, allowed the Bank to generate ARS1,105 million profit, representing a return on equity of 29%.

As of December 31, 2011, the private sector loan portfolio totaled ARS22.3 billion, growing 50.3% annually. Such increase is mainly due to the significant expansion of finances to the middle-market segment and to consumption. The asset quality ratio was over 45%, at the end of December, improving compared to the same quarter in 2010. The coverage ratio reached [422%]. That ratio allowed the Bank to continue to be the leader in the Argentine financial system, in terms of asset quality.

Total deposits reached ARS29.3 billion at the end of December, an increase of 29.9% in the [last 12 months]. Both time deposits, as well as sight accounts, registered significant growth in the period, increasing 31% and 37.7%, respectively.

BBVA Frances returned to the capital markets, successfully placing the first issuance of negotiable obligations under its $500 million global program aimed at funding business growth. The total amount issued exceeded ARS185 million. And, in July 2012 (sic), the second issue took place, also registering high demand and showing the investors' support. (inaudible) is ARS150 million. The market's response demonstrates the confidence that BBVA Frances enjoys, together with the expectation for growth and development anticipated for the Bank.

Once again, during 2011, BBVA Frances maintained high levels of liquidity and solvency. The total shareholders' equity reached ARS3.9 billion, while the excess of capital over the Argentine central bank requirements reached ARS1.3 billion, or 33.1% of the Bank's total stockholders' equity. The capital ratio reached 15.5% of weighted-risk assets. At the end of December, liquid assets represented 33.5% of the Bank's total deposits.

During 2011, total shares of Consolidar Compania de Retiro were transferred to Grupo Dolphin Holdings. Then, as part of the merger with Consolidar Comercializadora, 516,544 ordinary shares were issued, increasing the Bank's capital stock. And, finally, the BBVA Group entered into an agreement with Galeno Argentina to purchase all shares it held in Consolidar Aseguradora de Riesgos de Trabajo, 12.5% of which corresponds to BBVA Frances. On February 2012, the transaction was approved by the Argentine Insurance Superintendent and, in accordance with the conditions established in the agreement, the closing for this transaction must take place within 30 days from [Saturday].

On January 27, 2012, the central bank increased the capital requirements for financial institutions operating in Argentina, effective as of February (inaudible), 2012, [through] two communications. The first one requires an increase of capital related with the coverage of the operational risks, (inaudible), an additional (inaudible) equivalent to 75% of the total capital requirements, [only] for the purpose of [distributed] profits. As a consequence of the [augmation] resolution, BBVA Frances will not distribute dividends for this period.

Now, let's move on to the P&L. Net financial income reflected the significant expansion in the volume of business activity, continuing the upward trend in net income, which grew 53.1%.

Regarding the results from public and private securities, the Bank has the discretion to mark to market its total public bond portfolio. Consequently, income from securities includes the non-recurring income originated by variations in the portfolio's valuation. That results total losses of ARS135 million during 2011.

Net income from services also reflects the growth in the business activity level. Such income grew 38.5% in the last 12 months, mainly driven by higher consumption with credit cards, higher fees originated by services from deposits, and growth in insurance sales.

Service charge expenses grew mainly due to the increasing benefits offered for credit card [transactions]. Administrative expenses increased 28.9% compared to the same quarter in 2010. Personnel expenses grew in the same period, mainly due to globally increasing wages according to the agreement reached with the labor unions. General expenses [increased] 36%, due to higher advertising expenses resulting from (inaudible) campaign, in addition to the charge related previously to the activity level and to prices that were related to structural fixed costs.

At the end of December, the Bank and its subsidiaries, except the Consolidar Group, had 5,017 employees. The branch-office network totaled 268 offices, including 240 consumer branch offices and 28 branch offices specializing in the middle-market segment. Corporate banking included seven business units, grouped by industry. Complementing its distribution network, the Bank has 14 in-Company branches and 2 points-of-sale outlets, 654 ATMs, and 695 quick deposit boxes.

As regards to the activity level, the private sector loan portfolio continued to grow steadily. All the segments registered significant growth in the portfolio. In the last 12 months, loans to small- and middle-sized companies grew 53%; the retail portfolio grew 47%; and financing to large corporations, 43%.

The increase in discounting notes, loans to finance foreign trade operations, and leasing were the drivers of the expansion in the middle-market segment, while growth in personal loans, credit cards, and (inaudible) loans did the same in the consumer segment. [Bilateral] loans have advantage of the increase in wholesale banking.

As for the public sector debt, national treasury exposure decreased 41%, to the same quarter of 2010, mainly due to amortization, sale of part of the portfolio, and lower valuation. At the end of December, public sector national treasury assets represented 6% of the Bank's total assets. The total exposure to the central bank's bills and notes net of holdings linked to reverse repo transactions represented 6.8% of the Bank's total assets.

Total deposits reached ARS29.3 billion at the end of December, an increase of 29.9%. As we mentioned previously, both time deposits as well as sight accounts grew during the quarter.

The Bank's total shareholders' equity totaled ARS3.9 billion, representing [in our case] an excess of ARS1.3 billion over the central bank capital requirements. On the same day, the capital ratio reached 15.5% of assets adjusted to risk.

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

(Operator instructions) And, we'll take our first question from Tito Labarta from Deutsche Bank.

Hi, Cecilia. Thanks for the call. So, I have a couple of questions. Just first, given the strong growth we've been seeing in the loan portfolio, I just want to get a sense in terms of your expectations for asset quality. It remains very strong but, given the strong growth we're seeing, how much longer do you think it can remain like this? When do you think you can maybe start to see some signs of deterioration? I mean, we did see a little bit in the quarter, but do you think this could get significantly worse, particularly if there's a slowdown in Argentina, this year? And then, also, how would that translate into provision charges, which fell quite a bit in the quarter? But, is this a sustainable level? Or, do you think you can go back to levels we saw maybe in the third quarter or earlier in the year? So, I just want to get a sense of provision levels, going forward. Thanks.

Hello, Tito. Well, first of all, the deterioration in the non-performing [ratio] is not an issue. It's very low and, yes, we expect a little deterioration, mainly because we are focusing on the retail segment, but nothing to be worried about. And, about the level of provisions, [we'll be are], the Bank, revising the portfolio and change the level of provision because, as you know, we are making provisions higher than the requirement of the central bank. So, I think that the level should be more close to the last quarter.

So, above 1%? 1.2%? 1.3%?

Yes. Yes. It's higher than 1% that the central bank requires. For the retail portfolio, it's 1.5%, and, for commercial loans, it's 1.25%.

OK. So, then, just to follow up with that. Then, your coverage ratio fell a bit in the quarter, but it remains very high. Is this a sustainable level for your coverage ratio around 420%? Do you think that can come down any further?

I think that the coverage ratio should [be going down relatively] during this year.

So, can you give some guidance around how much it would go down?

I don't have the figures now, but it should be lower than 500%, lower than that.

All right. OK. Fair enough. And, if I could just ask one more question, you mention in the press release that you won't be paying any dividends this year, given the higher capital requirements. When do you think you would be able to pay dividends? Do you think by next year you'd have enough capital to do that, just by retaining earnings? Could this mean any potential capital increase? Or, you just won't pay dividends until you have sufficient capital? If you could maybe give some color with the new capital requirements and potential dividend payments in the future? Thanks.

The thing is that there are many factors to take into account to say when we will pay dividends again. The things [obviously surround] increasing the portfolio, and the economic environment, and so on. So, if we see a different scenario, I can't say a date, or specific date, but we expect to pay dividends soon with a degree of (inaudible).

Sorry. So, you say you expect to pay dividends soon? I didn't get the last thing you said.

[I don't know if it's] next year or the next year, but I can't say when, because I don't know how will be the results and the (inaudible) from the Bank and the behavior for next year.

All right. OK. Fair enough. All right. Thank you.

We'll take our next question from Federico Rey from Raymond James.

Yes. Hi. Good afternoon, everybody. I have two questions. The first one is regarding loan growth for this year, 2012. I would like to know if you have -- or, what's your estimate, after growing around 50% in 2011? And, the second question is regarding margins. We saw an increase in the spreads, the lending spreads, during the fourth quarter, and I would like to know, considering the reduction in the Badlar rate during the first month of this year, if you are expecting a decline in lending spreads, or not. Thank you.

Hello, Federico. How are you? Well, regarding loan growth, our first Badlar was something like a 40% increase for 2012, but we are thinking now lower than that, more close to 25%.

OK.

And, the second one, regarding the spreads, yes, I think that the spreads increased, or the interest rate increased, in the last quarter, and we expect to be more (inaudible) this year. But, the thing is, that will be higher than in 2011.

OK, but probably lower than the fourth quarter? That's correct?

Yes, but -- yes.

OK. Thank you.

(Operator instructions) We'll take our next question from Luis Guzman from Santander.

Hello. Good afternoon. Thanks for taking my question. I would like to ask your guidance for costs for 2012, given the expansion in 2011.

Well, first of all, it depends on the agreement with the labor union. We are [budgeting] something low-20%, but we don't know finally what will be the figure for the agreement.

OK. And, this 15% would be --?

(inaudible) that we presented, the personnel expenses are practically 60% of the total expenses. So, it's very important, the results of the agreement. And, then, the rest of the costs were in line with inflation.

OK. And, just to clarify, this 20% that you expect is costs overall, right, personnel and admin?

Yes.

OK. Thank you very much.

You're welcome.

(Operator instructions) And, we have another question from Federico Rey from Raymond James.

Hi. Another question regarding the fees. We saw flat fees quarter on quarter, in the fourth quarter relative to the third quarter. I guess that's something related to campaigns, some marketing campaigns, due to Christmas, et cetera. I would like to know if the 30%, in year, that we saw in 2011 is sustainable, or if you foresee something lower. Thank you.

No. It's to be similar (inaudible) that in the last quarter. As you mention, we had more fees paid for discounts and benefits in the credit card consumption, the [expiration], because the fees were flat. But, for 2012, we expect something close to (inaudible).

Sorry. How much? 30%?

Yes, something like that.

Thank you.

(Operator instructions) Ms. Acuna, it appears we have no further questions at this time.

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

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.