Banco Bbva Argentina SA (BBAR) 2016 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the BBVA Frances Reports Consolidated First Quarter Earnings for Fiscal Year 2016 Conference Call. Today's call is being recorded. And at this time I'd like turn the conference over to Lucia Staudenmann. Please go ahead.

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 27A 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 2015 filed with the US Securities and Exchange Commission.

As usual, we will start with a brief summary of the most important topics of the first quarter of 2016 and then we'll be open to questions. BBVA Frances' begins the year strengthening its efforts in line with BBVA Group's global proposal. In this sense, the Bank renews it purpose under the slogan, bring the age of opportunities to everyone, with the aim of generating a positive impact in the client experience within the financial industry.

As of March 2016, the Bank had 5,884 employees. In addition the branch office network totaled 301 offices, including 251 consumer branch offices and 34 branch offices specializing in SMEs and institutions. Corporate banking is divided by industries; consumption, heavy industries and oil and gas, providing personalized attention to large corporations. Complementing its distribution network, the Bank had 14 in-company branches, one point of sale outlet and one express point, 695 ATMs and 796 self-service terminals.

Now I would like to make a brief review on the macroeconomic environment. In December 2015, the National Government declared, after taking office, the situation of statistic emergency as a consequence of the inconsistencies detected in the information released by the INDEC. This measure implies the temporary suspension of the release of new economic figures until the situation has been regularized. As a consequence several indicators mentioned below are not updated.

Regarding economic activity, INDEC has recently published the revised preliminary GDP for 2015. Economic activity increased by 2.1% during last year, losing momentum during the fourth quarter when it only increased by 0.9% on an annual basis. There is no official GDP data for the first quarter 2016. The latest information issued by INDEC regarding the National and Urban Consumer Price Index corresponded to October 2015 and showed accumulated inflation of 11.9% for the January-October period and of 14.3% compared with October 2014.

In order to fill the lack of CPI information until new figures are released, we took as a proxy the CPI of the Autonomous City of Buenos Aires. Such index increased by 11.8% during the first quarter of 2016 and by 35% year-over-year. The national public sector fiscal balance recorded a primary deficit of ARS49.6 billion during the first quarter of the year, representing a 12.2% increase compared with the deficit of ARS44.2 billion, reached during the same period of the previous year.

These numbers do not include incomes from rents of Central Bank and ANSES. (inaudible)[00:04:18] primary public sector spending increased by 28.3% and public sector revenues showed an increase of 31.1% during the first quarter of 2016. Public debt interest payments increased by 19.1% during the same period and income from rents of Central Bank and ANSES increased by 78.7%. As a result, the total deficit reached ARS34.6 billion, representing a 21.9% decrease (technical difficulty).

In the external sector, the accumulated trade deficit reached ARS0.4 billion (sic - see Press Release "$0.4 billion") during the first quarter of 2016, 68.3% lower than that recorded during the same period of 2015. As of the end of March 2015, the Central Bank stock of international reserves increased by $4 billion, reaching a total balance of $29.6 billion. The Central Bank maintains a bilateral currency swap agreement entered into with the People's Bank of China. Further, since February 2016, it added $5 billion coming from a repo transaction with private banks.

The Badlar interest rate for private banks increased by 322 basis points in the first quarter of 2016, averaging 27.4% compared with the 24.2% average rate by the end of 2015. The stock of private sector loans in pesos in the financial system decreased in the first quarter or 2016 by 0.3% compared with the balance as of the end of 2015, while private sector loans in dollars increased by 35.3%. At the same time, total deposits increased by 3.4% in the first quarter of 2016. Private sector deposits denominated in pesos increased by 2.5% and those denominated in dollars increased by 11.7%.

Now let's turn into the Bank's performance. BBVA Frances net income for the period ended March 2016 reached ARS1.2 billion, representing a 25% increase year-over-year. The Bank's ROA reached 4%, while its ROE was 31.5% both as of the first quarter of 2016. Net financial income grew by 30.4% compared with the first quarter of 2015. That increase was mainly due to higher intermediation with the private sector as well as higher gains derived from the public bond portfolio and foreign exchange differences.

Income from securities and short-term investments included non-recurring income originated by variations in the valuation of public securities. Such results totaled a loss of ARS204.8 million during the quarter under analysis, whereas for the same quarter of 2015 and the previous quarter, it registered gains of ARS267.1 million and ARS382.1 million, respectively.

Both the line items, CER adjustment and foreign exchange difference reflected important gains compared to the same quarter of 2015 and the previous quarter mainly due to the depreciation of the Argentine peso in December 2015.

During the second quarter of 2015, the Bank redefined the charges triggered by credit and debit card transactions, reclassifying them from administrative expenses to service charge expenses, in line with the standards applied in the industry. Not taking into account such redefinition, net income from services increased by 7.5% year-over-year. Growth was mainly due to higher consumption with credit cards, higher fees associated with insurances and higher fees generated by an increase in the stock of deposit accounts, as well as due to the fees generated by PSA Finance. Such growth was partially offset by an increase in service charge expenses related to promotions associated with the LATAM Pass kilometers program.

Regarding administrative expenses, also not considering the recognition, increase would have been of 39.8% year-over-year. The increase in personnel expenses mainly reflected advances for future salary increases and a higher number of employees compared with both other quarters under analysis. General expenses increased by 43.9% annually and increase was mainly due to higher advertising and promotion charges that were registered in line with the commercial campaigns developed by the Bank, as well as to higher electricity and communications charges in accordance with the tariffs adjustments, the impact of increasing prices, the effect of devaluation and a higher volume of activity.

In connection to the activity levels, the private sector loan portfolio totaled ARS59.1 billion as of March 2016, representing an increase of 37.3% compared to the first quarter of 2015. In the last 12 months, consumer loans increased by 35.2%. Such increase was mainly due to an outstanding performance of credit cards, which registered an increase of 46.6% during the period, whereas car loans and personal loans also registered increases of around 20%. Commercial loans increased by 39.8% in the same period, mainly due to a higher portfolio of advances and foreign trade operations. The Bank increased its private loans market share reaching 6.6% as of first quarter of 2016.

BBVA Frances once again has maintained the best asset quality indicators in the financial system. As of March, 2016, the NPL ratio was 0.69% while coverage ratio reached 283.67%. Exposure to the public sector's National Treasury increased 50.1%, whereas the Bank's portfolio of Central Bank bills and notes showed an increase of 11% both compared to the first quarter of 2015, in accordance with the liquidity policy implemented by the Bank.

Total deposits reached ARS80.1 billion as of March 2016, representing an increase of 44.7% in the last 12 months. During the year, time deposits registered a significant increase of 47.1%, while sight accounts also increased by 44.1%. It is important to mention that transactional deposits represent [56.3%] of the Bank's total deposits.

Total peso-denominated deposits increased by 28.7% and foreign currency-denominated deposits increased by 173.1% both year-over-year. BBVA Frances maintains adequate levels of liquidity and solvency. As of March 2016 liquid assets represented 45.8% of the Bank's total deposits. The capital ratio reached 15.8% of weighted risk assets with an excess of capital of ARS7.1 billon, which is 90.3% higher than the minimum regulatory requirements.

At the Ordinary and Extraordinary Shareholders' Meeting held on April 26, 2016, the shareholders approved by majority the distribution of cash dividends for an amount of ARS900 million. The payment is subject to the authorization of the Central Bank. In addition, ARS2.1 billion were allocated to the discretionary reserve for future distribution results.

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

(Operator Instructions) Marcelo Telles, Credit Suisse.

My question -- I have two questions actually. The first one on the NII performance for the quarter. We saw good performance versus the fourth quarter, but digging a little bit deeper, it seems there was perhaps some mark-to-market in the quarter. If you could quantify in case there was a mark-to-market what the impact was? Just trying to understand the sustainability of the NII growth.

And the other question is more a top-down question, how are you seeing the operating environment for you, in the second quarter are you still seeing credit demand still relatively weak? When do you think we're going to start to see let's say more pronounced growth in credit in real terms? Thank you.

Starting with the environment question; we'll definitely see that second semester of 2016 (technical difficulty) than the first one. The first quarter is always seasonally weaker than the rest of the year. We are expecting that 2016 is going to end with an 0.4 decrease in GDP (inaudible)2017 and 2018 is going to be better. We are expecting around a 3% increase in GDP and that will for sure be positive for activity and the Bank's margins. So well, I think there is going to be good news by the second semester of 2016 and 2017.

Regarding the margin, yes, as I previously mentioned, there has been some low fees regarding public bonds, whereas in the first quarter 2015 and fourth quarter of 2015, there have been some gains. So maybe that's where you can explain the difference in the pubic bond portfolio evaluation.

(Operator Instructions) Frederic de Mariz, UBS.

A couple of questions on my side. Following up to (inaudible) on the margin side, thinking about the next few quarters, what would be your expectation on the margins? And you mentioned that 1Q is always seasonally weak so what kind of rebound should we expect for the next few quarters and what's the overall level you foresee for this and maybe next year and then I'll come back with the second question.

As I previously said, first quarter is weaker, then we are expecting second semester of 2016 to be better. I can also add on this subject that last April the Central Bank decreased the monthly amount that Bank must allocated to (inaudible)[00:16:24]. We are returning to the prior scheme so there's going to be for sure a positive impact on that.

And lastly I think it's very important to highlight -- to keep in mind the Bank has around of [67%] of the deposit personal cost. So, I think that also a very good thing for the Bank and that we are going to finish the year according to our expectations, I believe.

Would you be able to quantify maybe the change in margins, if you take 2016 versus 2015? I know there is a lot of moving parts, but is there a number you could share with us?

Well, I believe that around 20% maybe, yes, that'll be a good number.

The 20% would be the growth in net interest income in your expectation?

Yes.

And then my second question has to do more with consolidation or the change in the structure of the banking sector in Argentina. We've seen in the local press that there might be a transaction with Citibank. I just wanted to get your general thoughts about whether you are interested as a potential buyer in other assets and what do you think specifically about the Citibank assets, if that would be good feat, if that's of interest for you guys? Thanks.

BBVA Frances is always analyzing inorganic opportunities like these. However, I don't have any news from that front.

And generally speaking about acquisitions, is Frances interested? Is it something you guys would be looking at?

I mean there must be for sure some consolidation in the future in the financial system. So, well, I think, yes, we are currently analyzing opportunities.

(Operator Instructions) We have no further questions.

Thanks again for joining us. And if you have any further questions, please contact us in our offices. Thank you.

This concludes today's conference. We appreciate your participation, you may now disconnect.