Banco Bbva Argentina SA (BBAR) 2015 Q1 法說會逐字稿

Please stand by. We are about to begin. Good morning, ladies and gentlemen, and welcome to the BBVA Frances report consolidated first quarter earnings for fiscal year 2015 conference call. Today's call is being recorded. I would now like to turn the conference over to Ms. Lucia Staudenmann. Please go ahead, ma'am.

Thank you. Good morning, everyone. 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 and the 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 Frances' Annual Report on Form 20-F for the fiscal year 2014 filed with the US Securities and Exchange Commission.

As usual, we will start with a brief summary on the most important topics of the first quarter of 2015, and then we'll be open to questions.

BBVA Frances has set its strategic priorities for 2015, focusing on profitability, transectionality, productivity, and quality, being the client the center of its activities.

During the first three months of 2015, the Bank continued to develop several commercial actions in each of the banking divisions with the aim of further strengthening the franchise.

As of March 2015, the Bank had 5,595 employees. The branch network totaled 282 offices, including 251 consumer branch offices and 31 specialized in the middle market segment companies and institutions.

Corporate banking is divided by industry (inaudible) heavy industry and oil and gas, providing personalized attention to large corporations.

Now, I would like to make a brief review on the macroeconomic environment. The monthly estimator of economic activity, known by its acronym in Spanish as EMAE, grew 0.9% in February 2015 compared to January and 1.4% compared to February 2014.

Regarding the industrial sector, the monthly industrial estimator decreased by 0.2% in the first quarter of 2015 compared to the previous quarter and 1.9% compared to February 2014.

Inflation, measured by the official national and urban consumer price index, used to calculate the CER adjustments for some sovereign bonds, increased by 3.4% in the first quarter of 2015, measuring an accumulating inflation rate of 16.5%.

The national public sector fiscal balance showed a primary deficit of ARS15 billion in the first two months of the year, registering a decline of 211% compared to the deficit of ARS4.8 billion, reached the same period of 2014.

In this sense, primary public sector spending rose 37.4%, while public revenues showed an increase of 31.3%.

In the external sector, the accumulated trade surplus reached $169 million during the first quarter of 2015, 8.3% higher than that recorded in the same period of 2014. Total exports amounted to $13.4 billion, and total [imports] amounted to $13.2 billion.

Regarding the foreign exchange market, the exchange rate central bank reference rate closed at ARS8.82 per US dollar on March 31st, 2015, increasing 3.1% compared to December 2014 and 10.1% as compared to March 2014.

In the first quarter of 2015, central bank stock of international reserves amounted to $31.5 billion, increasing $47 million compared to the end of 2014. During the quarter, the central bank sold $992 million in the FX market. And that is $2.5 billion from the central bank swap with the People's Bank of China.

This (inaudible) currency swap deal was signed for the total amount of $11 billion. And at the end of the first quarter of 2015, a total amount of $4.8 billion had already been transferred.

The BADLAR interest rate for private banks decreased 62 basis points in the first quarter of 2015, averaging 20.5% compared to 19.9% average in the fourth quarter of 2014.

Regarding activity in the financial system, private sector loans in pesos increased 4.5% compared to the fourth quarter of 2014, while private sector loans in dollars recovered 9.5%.

Total deposits in pesos in the financial system increased by 4.5% during the same period. Private sector deposits in pesos increased by 8.2% and 4.3% in dollar terms.

Now, let's turn into the Bank's performance. BBVA Frances' first quarter 2015 net income amounted to ARS930.9 million, achieving a return on equity of 34.5% and a return on assets of 4.8%.

Net financial income grew 15.6% compared to the previous quarter, mainly due to higher income from the public bond portfolio and from foreign exchange differences.

Income from the intermediation with the private sector reflected a slight decline during the quarter due to an increase in the cost of funds as result of the change in the mix of deposits and to a lower volume of lending.

Income from securities and short-term investments includes nonrecurring income originated by variations in the valuation of public securities. Such results total a gain of ARS267 million during the quarter under analysis and of ARS192.1 million as of March 2014.

The line item CER adjustment declined by 52.6% and 17.6% compared to the first quarter of 2014 and to the previous quarter, respectively. Furthermore, the line item foreign exchange difference and others reflected a decrease compared to the first quarter of 2014 as a consequence of the foreign exchange appreciation that took place during such quarter.

Net income from services increased by 31.8% compared to the first quarter of 2014 and by 4.5% compared to the previous quarter. In the annual comparison, growth was mainly due to higher consumption with credit cards, fees associated with insurances, fees generated by an increase in the [stock] of deposit accounts together with those generated by [special] finance.

Such growth was partially offset by an increase in service charge expenses related to promotions associated with the LANPASS kilometers program.

In the quarterly comparison, net income from services increased 4.5% due to higher fees generated by insurance and by special service deposit accounts, partially offset by lower fees originated by credit cards. Service charge expenses registered a decrease of 15.4% during this period.

Administrative expenses increased by 30.4% compared to the first quarter of 2014 and by 6.9% compared to the previous quarter. The increase of personnel expenses mainly reflected the payment in advance for future salary increases and a higher number of employees compared to both the first quarter of 2014 and the previous quarter.

General expenses grew 26.9% compared to the first quarter of 2014 and 1.5% during the quarter. In the annual comparison, higher depreciation expenses were recorded in connection with the Bank's ATMs renewal plans in addition to the impact of increasing prices and the effect of devaluation, all of this partially offset by lower advertising and promotion charges.

The line item other income or expenses totaled a loss of ARS97.6 million during the quarter, which includes ARS48.8 million of administrative penalties, which were registered in accordance to central bank communication A5689 issued on January 2015. In addition, during the quarter, lower recovery credits were registered.

In connection to the activity level, as of March 2015, the private sector loan portfolio totaled ARS43.1 billion, increasing 17.1% and 4.1% compared to the first quarter of 2014 and the previous quarter, respectively. BBVA Frances' market share of loans to the private sector was 6.4%, quite similar to that registered at the end of 2014.

The last 12 months, consumer loans grew 25.6%, with an outstanding performance of credit cards, which increased by 55% during the period. Loans to small- and medium-sized companies increased by 20.1% due to a decreased placement in commercial loans, leasing, and foreign trade operations. The corporate segment portfolio has maintained a similar level.

During the quarter, consumer loans grew 4.5%, mainly due to higher credit card financing. And middle market portfolio registered a similar level of growth, while loans to large corporations grew at a slower pace.

In 2012, the Argentine Central Bank established that certain financial institutions should allocate a minimum portion of total deposits to finance investment projects. That requirement has been renewed every six months since then. And BBVA Frances has successfully complied with each renewal quota. As of March 2015, the accumulated amount of productive investment loans placed by the Bank reached ARS9.5 billion.

BBVA Frances continues to maintain the best asset quality indicators in the Argentine financial system, despite an environment that has shown signs of deterioration. The NPL ratio reached 0.92% as of March 2015 with a coverage ratio of 234%.

Exposure to the public sector's national treasure grew 43.5% annually, while it declined 4.7% during the quarter. The Bank's portfolio of central bank bills and notes showed a significant increase both during the period under analysis and in the last 12 months, reflecting the liquidity management policy implemented by BBVA Frances.

Public sector national treasury assets represented 3.5% of the Bank's total assets. Total exposure to central bank bills and notes net of holdings leading to reverse repo transactions represented 12.3% of the Bank's total assets.

Total deposits reached ARS55.4 billion, increasing 23.3% in the last 12 months and 7.6% during the quarter. As of March 2015, BBVA Frances market share of deposits to the private sector was 6.9% and showed a slight decrease compared to December 2014.

In the annual comparison, sight accounts registered a significant increase of 35.4%, when time deposit increased at a slower pace of 7.8%. Compared to the previous quarter, total deposits growth was driven by time deposits, which increased 13%, while sight accounts grew 3.1%.

[Please note] that deposits denominated in foreign currency grew 25.7% in the last 12 months and 11.4% compared to the previous quarter.

BBVA Frances once again has maintain high levels of liquidity and solvency. As of March 31st, 2015, liquid assets represented 45% of the Bank's total deposits. The capital ratio reached 17.1% of weighted risk assets, with an excess of capital of ARS5.8 billion, which represents 107.8% over the minimum regulatory requirements.

At the ordinary and special shareholders' meeting held on April the 7th, 2015, the shareholders approved the distribution of cash dividend for the amount of ARS400 million. The payment is subject to the authorization of the Argentine Central Bank. In addition, ARS2.2 billion were allocated to the optional reserve for future dividend distribution.

On May the 4th, 2015, BBVA Frances appointed Mr. Martin Ezequiel Zarich as the new CEO. It is [no question] that Mr. Ricardo Moreno will continue his career in Spain, where he will be responsible for software development and management of technology and operations for BBVA Group. The Board also decided that the resignation of Mr. Moreno shall be expected when the central bank authorizes Mr. Zarich as the new Executive Director. Mr. [Gustavo Alonso] will be the new Director of Innovation and Development Division.

These organizational changes response to BBVA Group's digital transformation by which the intent's to assure long-term success of the business adopting the current [analogical] banking model to the needs of the clients of the 21st century.

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

(Operator Instructions). [Juan Vasquez], [Fuente].

Yes, hello, everybody. I actually have two questions. The first one is regarding loan growth. The 18% average -- sorry, annual growth in private sector loans seems to be lower than the average for private banks in the financial system. So, we wanted to get some color on that and confirm whether we should expect this trend to continue in 2015.

Hi, Juan. Yes, would you like to tell me your other question?

Yes, the second question is about fee income. We'd love to know your thoughts on where that's going to be and impact due to the 3% cap on fees imposed by central bank.

Okay. First of all, with the -- go with the question of the loan growth, we're expect 2015 a growth in our loan portfolio of around 20% or 23% maybe. And regarding fees, well, we have been authorized by central bank in April to make some adjustments to our fees. So, we believe that finishing 2015 will be in line with our budget, and well, there will be no dramatic effect on [these cuts].

Okay. So, as a follow up, we should expect fee income to basically be in nominal terms around the same slot here?

Yes, I believe so.

Okay. Perfect. Thanks.

Thank you.

Boris Molina, Santander.

Yes, I had further question regarding the slowdown in volume growth. And could you give us some color where -- which areas you -- have you seen the weakest demand? And given that you're expecting your growth to kind of pick up a little bit towards the end of the year, what would account for that pickup? Is it accelerated to the elections? Do you expect a pickup towards the end of the year? Do you guys have maybe some color of how is the market performing and how you expect to perform in different segments, maybe corporate performing better or consumers?

Okay. Hello. Okay. First of all, regarding the environment, 2014 was a tough year. 2015 will be no different. As I told before to Juan, we believe we'll have a 20% or maybe 23% growth in our loan portfolio. And well, we're expecting a consumer loan portfolio to perform better than the other ones. But, well, this is kind of a year to wait and see. But, well, that -- I think consumer loans will be performing the best, as you are already seeing.

Okay. Wonderful. Thank you.

No, thank you.

(Operator Instructions). Santiago Petri, Franklin Resources.

Yes, hi, good afternoon. My question is related to the dynamics of private sector loans growing below the deposit growth rate. I understand that you are placing this excess liquidity into government paper and central bank paper. So, what's the limit that you have to these kind of dynamics? Here, in your press release, you state that the total exposure is 12% of bank assets. What's the limit that you have to continue accumulating government debt? Thank you.

Hi. Well, yes, we are currently allocating liquidity in central bank bills and notes. I think this is what most of institutions in the system is doing right now. We are kind of seeing how the environment develops and what are the needs of the business. And we were going to manage that kind of paper according to the evolution of the system.

Sorry, the limit that you have to put into your balance sheet, central bank or government debt, is what?

Well, regarding a limit, well, we are in line with BBVA Group's limit policy, and we'll continue the same.

Okay. And if I can maybe follow up, the net interest margin that you're expecting, what would be the net interest margin currently, and what would be the one that you expect for the whole year?

Well, for 2015, we're expecting a little bit of constraint in our margin. This, of course, has to do with the set of regulations that we have been imposed by the central bank. Well, we are expecting a little bit of constraint, nothing dramatic, as I already told you. But, I think we are going to end the 2015 in line with our estimations and our budget.

Okay. Thanks a lot. I turn back to the floor.

Thank you.

(Operator Instructions). Juan Vasquez, Fuente.

Yes, this is a follow-up question to a previous one. So, there are actually no limits for the Bank investing or to allocate liquidity in central bank bills, right?

No, there is not a limit that we're imposed. It comes from BBVA Group, and we are following each month how we are doing with this limit and (inaudible).

Okay. Perfect.

Thank you, Juan.

We have no further questions in the queue at this time.

Thanks, again, for joining us. And please do not hesitate to contact us in case you had any further questions. Thank you.

That does conclude today's conference. We thank you for your participation.