Banco Bbva Argentina SA (BBAR) 2015 Q2 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 Reports Consolidated Second Quarter Earnings for Fiscal Year 2015 Conference Call. Today's call is being recorded. I would now like to turn the conference over to Miss Cecilia Acuna. 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 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 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 of the most important topics of the second quarter of 2015, and then we'll be open to questions.

On [May] 20, 2015 BBVA Frances executed a share purchase agreement with the Volkswagen Group for the acquisition of 51% of the issued and outstanding capital stock and voting rights of the Volkswagen Credit Compania Financiera Socio Anonima. This transaction is subject to the prior approval of the Central Bank.

According to the terms and conditions of the agreement, the maximum amount to be paid for the shares is ARS53 million, which will be paid by the bank at the closing of the transaction.

Furthermore, the Board of Directors of BBVA Frances implemented changes in its senior management by accepting the resignation of Mr. Eugenio Rogero, Director of Risk, and appointed Mr. Gerardo Fiandrino to occupy this position.

At the end of June the bank has 5,625 employees. In addition, BBVA Frances has an extensive branch office network of 282 offices, including 251 consumer branch offices and 31 branch offices specializing in the middle market segment companies and institutions.

Corporate banking is divided by industry, consumption-heavy industries, and oil and gas, providing personalized attention to large corporations.

Now I'd like to make a brief review of the macroeconomic environment. The monthly estimator of economic activity increased by 0.8% in May 2015 compared to April 2015, and 2.2% compared to the same month of 2014.

Inflation, measured by the national urban consumer price index, which is used to calculate the CER adjustments for some sovereign banks, increased by 3.2% in the second quarter, measuring an accumulating inflation rate of 15% year over year, and 6.7% in 2015.

The national public sector fiscal balanced showed a primary deficit of ARS14.1 billion during April and May, registering a decrease of 477% compared to a surplus of ARS3.7 billion reached in the same period of the previous year.

Primary public sector spending grew 39.6%, and public sector revenue increased 27.6% during the quarter.

In the external sector, the accumulated trade surplus reached $1.1 billion during the second quarter, 66.5% lower than that recorded in the same period of 2014. The trade balance reached total export of $16.8 billion, and total imports of $15.8 billion.

Regarding the FX market, the exchange rate closed at ARS9.09 per US dollar as of June 30, 2015, increasing 3% compared to that registered on March 31, 2015, and 11.7% compared to the second quarter of the previous year.

At the end of June the central bank stock of international reserves increased $2.4 billion, reaching $33.9 billion. During the quarter, the central bank bought $3 billion in the FX market, [and kept] the bilateral currency swap deal signed with the People's Bank of China.

The Badlar interest rate for private banks decreased 8 basis points in the second quarter, averaging 20.4%, compared to the 20.5% in the first quarter of 2015.

During the second quarter private sector loans denominated in pesos increased 7.1% compared to the first quarter, while private sector loans denominated in dollars grew 22.3%. Total deposits in pesos in the financial system increased by 8.2% in the second quarter compared to the previous one. And in the same period, private sector deposits denominated in pesos increased by 12.8%, and those denominated in dollars increased 2.5%.

Now let's turn to the Bank's performance. BBVA Frances reached accumulated net income of ARS1.6 billion at the end of June. During the second quarter, the Bank registered a gain of ARS667.2 million, increasing 67.2% compared to the same quarter of 2014, while it decreased 28.3% compared to the previous quarter, achieving a return on equity of 23.4% and a return on assets of 3.2%.

Net financial income grew 37.4% compared to the same quarter of 2014, while it has decreased 13.6% compared to the previous quarter.

The financial income arising from the intermediation with the private sector grew 19.3% compared to the second quarter of 2014, but it registered a decrease of 3.6% compared to the previous quarter. The decline was mainly due to lower short-term interest rates and higher cost of funds.

Income from securities and short-term investments including nonrecurring income originated by variations in the valuation of public securities. Such results total losses of ARS154.3 million during the quarter under analysis, and of ARS95.4 million at the end of June 2014, while it registered a gain of ARS257 million during the previous quarter.

It is important to highlight that during the quarter the Bank had implemented a recognition of [both] charges generated by credit and debit cards operations (inaudible) administrative expenses to creditor expenses, in line with the way the registered banks in the financial system charge these line items.

Net income from services recorded negative variations both compared to the same quarter of 2014, and to the previous quarter. Not taking into account such [recognition], net income from services increased 23.7% compared to the second quarter of 2014, and remained at the set level compared to the previous quarter.

In the annual comparison, service charge income grew 9.5%, mainly due to higher fees generated by an increase in the stock of deposit accounts, together with those fees generated by finance, partially offset by lower fees originated by credit cards.

Service charge expenses included a charge of (inaudible) accounts and those related to promotions associated with the LANPASS kilometers program. Similar behavior explains the quarterly variation.

Administrative expenses grew 11.5% and 36.9% in the same period, respectively, and 26.1% and 3.6% not considering the rev recognition previously mentioned.

Personnel expenses increased 22.1% compared to the same quarter as 2014. Such expenses include salary increases resulting from the agreement signed with the labor union, and higher number of employees due to the internalization of personnel, and efficiencies achieved as a result of the organizational changes carried out in September 2014.

In the quarterly comparison, personnel expenses declined 6.1%, reflecting adjustments due to the real impact of the labor union salary increases.

General expenses grew 31.8% annually and 11.3% versus the previous quarter, without taking into account the effect of the (inaudible). In the annual comparison, the Bank's expenses reflected higher taxes and depreciation expenses in connection with the improvement work carried out in the Bank's third quarter [on branches], mostly with the ATMs and a new (inaudible), in addition to the impact of the increase in prices, and the effect of the devaluation and a higher level of activity. Similar performance explains the quarterly variation.

Other income expenses registered a loss of ARS16.6 million at the end of June. The previous quarter included a charge of ARS48.8 million for administrative penalties. Higher proportionate income tax rate is a consequence of the tax revaluation of the Bogar 20 portfolio that took place during the quarter ending June 30, 2015.

In connection to the activity level, the private sector loan portfolio totaled ARS47 billion at the end of June, increasing 24% and 9.1% compared to the second quarter of 2014 and to the previous quarter, respectively. BBVA Frances' market share of loans to the private sector was 6.5%.

In the last 12 months consumer loans grew 29.6% with an outstanding performance of credit cards, which increased by 54.2% during the period. Loans to small and medium-sized companies increased by 28.3%, due to increased placement in commercial loans, leasing and foreign trade operations. The corporate segment portfolio grew, but at a slower pace of 6.7%. During the quarter commercial loans grew 13.4%, and consumer loans 5.9%, mainly due to high credit card financing.

The Central Bank renewed the credit line for productive investment obligations for the second half of 2015, requiring financial institutions to allocate 7.5% of total deposits to finance investment projects and working capital with a fixed rate of 18%. The allocation is 1 percentage point higher compared to the previous semester, while the interest rate decreased 1 percentage point in the same period.

It is noteworthy that in the framework of the credit line for productive investment projects, at the end of June the Bank completed the placement of the [franchise] of 2015 quarter. At the end of the quarter the outstanding amount of loan related to the credit line reached ARS6.9 billion.

BBVA Frances continues to maintain the best asset quality indicators in the Argentine financial system. The nonperformance loan ratio reached 0.89% at the end of June, with a coverage ratio of 235.99%.

Exposure to the public sector national treasury grew by 8.5% compared to the second quarter of 2014, while it declined 6.3% during the quarter. The Bank's portfolio of central bank bills and notes shows an increase in the last 12 months, and a slight decrease during the quarter, reflecting the liquidity management policy implemented by the Bank. At the end of June, public sector national treasury assets represented 3.4% of the Bank's total assets.

Total exposure to central bank's bill and notes, net of holdings linked to reverse repo transactions represented 14.2% of the Bank's total assets.

Total deposits reached ARS60 billion at the end of the second quarter, increasing 24.9% in the last 12 months, and 8.4% during the quarter. During the year, sight accounts registered a significant increase of 28.1%, while time deposits increased at a slower pace of 20%.

Deposits denominated in foreign currency grew 12.7% and 5.1% compared to the last 12 months and to the previous quarter, respectively, representing 10.7% of the Bank's total deposits.

On July 30, 2015, the Bank issued [Phase 16] of its bonds which were fully subscribed and paid, for a total amount of ARS204.4 million, due in 24 months, with a variable interest rate, equivalent to the Badlar rate plus 3.75%, with a quarterly payment of interest.

BBVA Frances maintain adequate levels of liquidity and solvency. At the end of the second quarter, liquid assets represented 41.9% of the Bank's total deposits. The capital ratio reached 16.6% of weighted risk assets, with an excess of capital of ARS5.9 billion, which represents 101.2% over the minimum regulatory requirement.

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

(Operator Instructions) Federico Rey, Raymond James

Hi Cecilia. Good morning. Thank you for the call. Can you comment on your expectations in terms of loan growth for the rest of the year, and the expectation in term of spreads, considering that we have seen a duration of both in terms of higher funding rates and lower lending rates? Thank you.

Hi, Federico. Well in terms of loan growth, we think that we'll be at the end of the year at a 25-27% increase. And in terms of the spreads, in spreads we see [further] deterioration and probably will continue in a similar trend. Mainly because the regulations of the central bank, and the excess of liquidity that pressured the [actual] interest rate go down.

Okay--

Oh, sorry. In terms of regulations, as you know that there is a new regulation increasing minimum CD interest rate.

Yes, I know. Thank you.

And there are no further questions in the queue at this time. Juan Vazquez, Puente

Hello Cecilia and everybody. Thank you for the call. One positive aspect about this quarter, in my view is that administrative expenses, taking into consideration the reclassification you mentioned, grew below the rate that we've seen in all banks in the financial system. So I wanted to know if you're taking specific measures for that to happen. Thanks.

We have a plan of control of expenses, and as I mentioned last year, in September there was a restructuring in terms of personnel expenses. And now we are seeing the savings.

Okay. Fair enough.

(Operator Instructions) And with no questions in the queue, I'd like turn the call over to Miss Cecilia Acuna for any additional or closing remarks.

Thank again for joining us. And please do not hesitate to contact us in case you have any [further] questions. Thank you.

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