Banco Bbva Argentina SA (BBAR) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the BBVA Frances reports consolidated second quarter earnings for fiscal year 2012 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 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 Frances' annual report on Form 20-F for the fiscal year 2011, filed to the U.S. Securities and Exchange Commission.

As customary, we will start the conference with a brief summary of the most important topics of the second quarter of fiscal year 2012 and, then, we'll be open to questions.

Let's begin with the macroeconomic environment. Economic activity continued its downward trend in the second quarter of 2012. The monthly estimator of economics [fell] for the first time since July 2009, accumulating a contraction of 0.8% in the first six months of the year. Deceleration of economic activity was also evident in the industrial production index, which decreased 2.7% in annual terms.

Inflation, as measured by the official consumer price index of greater Buenos Aires, which is used to calculate the CER index to which some sovereign bonds are linked, increased by 2.4% in the second quarter of 2012, [suffering] an annual rate of growth of 9.9%.

The primary fiscal surplus of the national public sector rose ARS2.7 billion in the second quarter of the year, 65% reduction with respect to the same quarter of [2012]. As a result, the total fiscal deficit in the first half of the year reached [ARS76 billion]. This deterioration of the fiscal balance was mainly due to 32.4% of total public sector spending over the 27.2% rise of total public sector revenues.

Social security benefits contributed more to the increase in fiscal spending, growing 41.7% in the first six months of 2012, while [compared] to private sector [show the lowered] growth rate, increased only 17.8% during the same period. Social security contribution was the only item on the revenue side to show an above-average increase, of 31%, while [stock] selection increased by 25.7% in the same period.

The accumulated trade surplus in the second quarter of the year reached $4.3 billion, 3.1% higher than that recorded in the second quarter of 2011. The performance of the trade balance is a result of total exports of $21.4 billion and total imports of $15.9 billion.

The exchange rate, central bank reference rate, closed at ARS4.5253 pesos per US dollar on June 30, 2012, increasing [3.435%] compared to the previous quarter.

The (inaudible) interest rate for private banks increased 234 bps in the second quarter, averaging 12% for the (inaudible).

Private sector loans in pesos rose 6.2% in the second quarter, while private sector deposits in pesos grew 9.9%. In contrast, private sector deposits in dollars decreased by 24.2%.

Going to the Bank's performance. BBVA Frances is one of the leaders in the Argentine financial system, with an operation (inaudible) of 270 offices, including 243 consumer branches and 27 branches specializing in the middle market segment. Corporate banking included 7 business units grouped by industry. Complementing its distribution network, the Bank has 20 in-Company branches and 2 point-of-sale outlets, 656 ATMs, and 697 quick deposit boxes.

The Bank had 5,109 employees at the end of June.

BBVA Frances has maintained its solid balance [factor], the best ratios in terms of asset quality, and significant [results] in the private sector intermediation business, confirming once again the (inaudible) of its implementing strategy.

Such strategy consists mainly of the continual development of the products and services the Bank offers designed to meet the clients' needs, focusing on the small and medium-sized companies and retail sector, with a goal of improving (inaudible) in every contact with the Bank.

BBVA Frances total net income during the second quarter of 2012 totaled ARS330.9 million. In recurring terms, such income reached ARS320.7 million, registering an annual increase of 34.8%, whereas quarterly it grew 8.7%.

Private sector loan portfolio totaled ARS223.8 million, as of June 30, 2012, 29.1% higher compared to the same quarter in the previous year. The increase was mainly due to [blocks] of consumer financing and expansion of lending to small and middle-sized companies.

It is important to mention that the Bank maintains the best asset quality ratios in the Argentine financial system, with 0.71% non-performing ratio and with a coverage of 268.6%.

Total deposits grew 15% in annual terms, total ARS30 billion by the end of June 2012. Total deposits denominated in pesos in the last 12 months grew 28.5%, whereas deposits denominated in foreign currencies declined 34.6% during the same period.

BBVA Frances maintains adequate levels of liquidity and solvency. As of June 30, 2012, liquid assets represented 34.5% of the Bank's total deposits.

The Bank's capital ratio reached 17.7% of weighted risk assets, with an excess of capital over the Argentine central bank minimal (inaudible) requirements of ARS1.6 billion.

On July 5, 2012, the Argentine central bank issued a new regulation which requires [certain] financial institutions to allocate a minimum amount equal to 5% of total deposits to finance investment products. At least 60% of such amount must be lent to micro, small, and middle-sized companies at an annual rate of 15% with a minimum term of 36 months.

Now, let's move on to the P&L. As I mentioned previously, net income totaled ARS330.9 million at the end of the second quarter of 2012. Net financial income showed significant increases -- 75.2% compared to the same quarter of 2011 and 17.8% compared to the first quarter of 2012. The evolution of the private business, with an increase of 20.5% in annual terms, together with an improvement in private [credit] were the main pillars of such steady growth.

The Bank has the discretion to mark to market its total public bonds portfolio. Price valuation of such portfolio totaled a gain of ARS7.6 million during the quarter. In accordance with the Bank's internal provision policy and the result of the analysis of the variables of such policy, the Bank made an adjustment to cyclical provisions in April 2012, [which resulted in a] 68.7% decrease in the line item provision for loan losses during the second quarter.

Net income from services grew 27.6% and 5% compared to the same quarter of the previous year and to the first quarter of 2012, respectively.

Services [side] income grew in both annual and quarterly terms, by 28.4% and 8.6%, respectively. Such increase was driven mainly by higher consumption in credit cards, higher levels of activity in deposit accounts, and higher insurance sales. On the other hand, service charge expenses grew mainly due to the increasing promotions related to the LANPASS Kilometers program and other promotions.

Administrative expenses increased 34.6% during the last 12 months, up 4.8% in the second quarter of 2012. Personnel expenses increased 43.1% in annual terms. It is important to mention that the merger with Consolidar Comercializadora closed on July 2011. As a result, there is a change in the basis of comparison. Such increase also reflects the salary increases agreed with the labor union.

[Variable] expenses increased 23.8% in the last 12 months, mainly due to higher tax charges and (inaudible), [removal of subsidies], together with (inaudible) related to the higher activity levels.

Other income/expenses totaled a loss of ARS82.9 million during the second quarter. Such loss was mainly due to higher charges and provisions for other contingencies in addition to the impact of the new salary increase on the stock of unused vacation days, the adoption of the benefits due to employees for years of service, and prepaid healthcare expenses.

It is important to mention that the previous quarter included a gain corresponding to the sale of the building located on 169 Independencia Street in Buenos Aires.

Income from equity investments (inaudible) net income from related companies that are not consolidated during the second quarter represent a gain of ARS17.5 million, was recorded, mainly due to the Bank's stake in Rombo Compania Financeria and [Interbank].

As regards to the activity level, the private sector loan portfolio totaled ARS23.8 billion, as of June 30, 2012, increasing 29.1% in the last 12 months and 2.5% in the last quarter. Consumer finances as well as (inaudible) companies led such expansion, growing in the last 12 months 35% and 25%, respectively.

Also, the corporate portfolio registered an (inaudible) performance in (inaudible), [representing] 24%.

Growth in the small and middle-sized companies segment was based on the increase in the financial loans, leasing, and (inaudible) loans, which offset the decrease in loans to finance foreign trade operations.

Growth in the retail segment was due to personal loans, credit cards, and car loans.

Finally, the increase in the corporate portfolio reflected higher advances and other loans.

Exposure to the public sector national Treasury maintained a similar level than the previous quarter. However, compared to the same quarter of 2011, it decreased 27.7%, mainly due to the sale of part of the portfolio and lower valuation.

At the end of June, public sector national Treasury assets represented 5% of the Bank's total assets. Total exposure to central bank bills and notes, net of holdings linked to reverse repo transactions, represented 9.1% of the Bank's total assets.

Total deposits reached ARS30 billion at the end of June, an increase of 15% in annual terms and maintaining [a similar] level compared to the fourth quarter of the year. In the last 12 months, both sight accounts as well as time deposits [registered] growth, increasing 28.5% and 12.6%, respectively.

(Inaudible) in deposits denominated in pesos increased 28.3% in annual terms whereas, in foreign currencies, fall 34.6% during the same period.

Other funding sources totaled ARS1.5 billion at the end of June, increasing compared to the same quarter a year ago and to the previous quarter. Such growth was due to the issuances of negotiable obligations of [both] the Bank and PSA Finance, together with higher financing lines from other banks.

The Bank's total shareholders' equity totaled [ARS4.1] billion as of June 30, 2012, while the excess over central bank minimum capital requirements was ARS1.6 billion. On the same day, the capital ratio reached 17.7% of assets adjusted to risk.

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

(Operator Instructions) Tito Labarta, Deutsche Bank.

Hi, Cecilia. Thanks for the call. One question in terms of your provisioning levels. If you could maybe give some more color on kind of the changes you made in the quarter that led to the lower provision charges? And, then, you know, how do you see asset quality evolving going forward, particularly with the slowdown we're seeing in Argentina? And, then, you know, what that's going to mean for future provision and the provision levels, going forward? Thanks.

Hello, Tito. Well, first, the fees that we -- as you know, we were making provisions higher than the require of the central bank. So, during this quarter, maintaining our risk policy. And, the thing is that we make an adjustment, because we -- all the portfolio, in situation is normal for the central bank, are at 1%. But, the recent portfolio is continue provision at 1.75%.

OK. And, then, maybe just, what are your expectations for asset quality, given the slowdown we're seeing in Argentina? Do you think there could be any significant deterioration?

Not a significant deterioration. We are lower than 1%, and we pretend to maintain in the similar level. The thing is we, in the previous quarters, we were making provisions higher to use in this moment. So, a slow deterioration in the ratio.

OK. And, then, just, I guess, then, in terms of your coverage, because your coverage ratio fell quite a bit, do you expect it to remain around these levels? Or, could that come down further?

The non-performing ratio? No. It will be in the --.

No. The coverage ratio. Sorry.

(multiple speakers) I think that we'll be maintaining similar levels than this quarter.

OK. Great. Thank you.

All right.

Nicolas Chialva, Itau BBA.

Good morning, Cecilia. Thank you very much for hosting the call. I've got a couple of questions. The first one is related to deposits, which seems to -- which growth seems to be somewhat elusive for two quarters, now. What do you attribute the [low] growth of deposits at Banco Frances relative to the banking system and its main peers?

Can you repeat the question?

Yes. Frances has been experiencing lower deposit growth for two quarters, now, than its peers. And, what do you attribute to that slower growth to?

OK. The first, (inaudible), or the main equation is a decrease in foreign currency decline mainly in the [book]. Explain the total (inaudible) practically. It could be smaller growth than the peers, [because] we are thinking that we are -- that our (inaudible) for 2012.

Sorry. I couldn't get that. Could you please repeat the last thing that you said? Your target --?

Is 15% for 2012.

15%. OK. 15%. Great. My following question is related to this volatility you have shown in loan loss provision expenses. It's kind of a follow-on question to what Tito asked. What level of loan loss provision of coverage of NPLs are you forecasting for the remainder of the year? You said that you are willing to work with a similar coverage ratio than the one you showed this quarter. So, can we expect you have already make all the conversions you had to make? Or, --? I mean, are you really comfortable with this level? Can we see further volatility?

Yes, we are comfortable with these levels, and we are looking forward to decrease the coverage level because mainly of the new regulations in the capital requirements [issued] by the central bank at the beginning of the year. It was the plan to decrease the (inaudible) ratio.

OK. OK. And, when I look at loan growth, I see that during the second period, it has been below that of its peers, as in the case for deposits. I believe this has been the case of increased charge offs. So, I'd like to know if this is actually the case? And, if we can expect further charge offs going forward?

In terms of loan growth? No, we are expecting (multiple speakers). Yes. (multiple speakers)

Yes. My question, to make it more clear, is, if you have increase charge offs, loan charge offs, recently? And, what level of charge offs are you expecting for the near future?

I didn't understand you. Sorry.

I am referring to the charge offs. Have you increased the level of charge offs during the second quarter, to the loan portfolio? The write offs of non-performing loans?

No. No. No.

No? OK. OK. That's the main point. Thank you very much, Cecilia.

(Operator Instructions) Federico Rey, Raymond James.

Yes. Hello. My question is regarding the net interest margin. During the quarter, we saw a strong increase in the net interest income, basically triggered by a strong reduction in the cost of funding, especially in the, of course, in the deposit side. My question is if you expect this as a sustainable level? Or, you expect that the NIM cannot improve any more from this level? Thank you.

Well, the interest rates are declining, but the thing is that if the loan growth continues in the same frame as the last two months would be another pressure on the interest rate. So, we will maintain the high levels of growth in net interest margin.

So, you expect the net interest margin to keep current level? Or, do you think that this could improve?

Oh, yes, (inaudible) the similar level.

OK. Thank you.

Luis Guzman, Santander.

Hello. Good morning. Thanks for taking my question. Could you give us a little bit of guidance on loan growth? Loan growth for the last quarters have been lower than the peers. And, I was wondering if you are lowering your previous guidance? Or, you are keeping it? Thanks.

OK. Loan growth for 2012, we expect something like 20%, 23% growth. During the quarter, we see an important decline in foreign trade operations that [upset] in some way the increase in the rest of the portfolio. But, as I mentioned, for the year, we expect something like 20%, 23% growth.

OK. Thank you.

Santiago Petri, Templeton.

Yes. Hi. Hello, everyone. My question is related to this new central bank regulation that requires you to finance these investment projects out of 5% of the total deposits. Is this requirement on new loans that you have to make? Or, if you already have those loans, in those categories, you don't have to make additional commitments to increase your loans with this provision? That will be my first question.

Hello, Santiago. No, there are [some] lines of the portfolio that we could allocate to this new regulation. For the Bank, it's ARS1.2 billion -- ARS600 million of them to corporate segment, that is in some way easier to comply, and the rest in micro and small and middle-sized companies. The problems, or the difficulties there to be first in terms of demand and then in terms of risk. But, we can allocate mainly leasing lines to that to comply this new regulation.

Well, my follow-up was, what kind of non-performing you would expect to have in these lines, because I mean the cost of -- you are required to lend this at 15%. I don't think the cost of funding of these operations is a problem. But, what will be the risk of this portfolio?

Well, the idea is to maintain the risk policy and the risk standards and the non-performance ratio that have had (inaudible) in this line at the moment. We maintain the same. But, I said that one of the problems to comply the smaller part of the regulation is with micro and small and middle-sized companies with a risk.

OK. OK. Thanks a lot.

(Operator Instructions) And, with no further questions, I'll turn the call back to you, Cecilia, for any additional or closing remarks.

Thank you. Well, thanks again for joining us. And, if you have any further questions, please contact us in our office.

And, ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. You may now disconnect.