Banco Bbva Argentina SA (BBAR) 2016 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the BBVA Frances Reports Consolidated Second Quarter Earnings for Fiscal Year 2016 Conference Call. Today's call is being recorded. I would now like to turn the call over to 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 27A of the Securities Act of 1933 under US Federal Securities Law.

These forward-looking statements are subject to risk 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 second quarter of 2016 and then we'll be open to questions. BBVA Frances' continues to strengthen its effort in line BBVA Group's global proposal to bring the age of opportunity to everyone. As of June 30, 2016, the Bank had 5,985 employees, the branch office network totaled 301 offices including 251 consumer branch offices and 34 branch offices specialized in small and medium size companies 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 has 15 in-company branches, one point-of-sale outlet and one express point, 680 ATM and 794 self-service terminals.

Now I'd like to make a brief review of the macroeconomic environment. The renewed Statistic National Agency published a revised GDP series for the period from the first quarter of 2004 to the first quarter of 2016, which show a slower rate of growth to that previously published, especially from 2007 onwards.

For the period 2005 and 2014 years, the average annual growth rate fell from 5.1% in previous estimates to 3.9% in the revised series. The new data shows that GDP grew 2.4% in 2015, and 0.5% annually in the first quarter of 2016, but fell 0.7% with respect to the fourth quarter of 2015 in seasonally adjusted terms.

During June 2015, the INDEC resumed the publication of the CPI. It published monthly inflation of 4.2% for May 2016 and 3.1% for June 2016. The report does not include the inflation rate of the historical series, only these monthly variations.

To compensate for the lack of CPI information until new figures are released by INDEC, we use as a reference the price index calculated by the City of Buenos Aires. Such index increased by 15.5% during the second quarter of 2016 and by 47.1% year-over-year, mainly reflected the increase in utility rates and public transportation.

The national public sector fiscal balance recorded a primary deficit of ARS71.6 billion during the second quarter of 2016, representing a 40.8% decrease compared with the deficit of ARS50.8 billion recorded during the same period of the previous year. These numbers do not include income from the Central Bank and ANSES.

Primary public sector spending increased by 25.7% and public sector revenues show an increase of 23.2% during the period. Public debt interest payments increased by 86.5% during the period and considering income from rents of the Central Bank and the ANSES, the total deficit reached ARS98.7 billion, representing a 56.8% increase compared with the same period of 2015. In the external sector, the accumulated trade surplus reached ARS870 [billion] during the second quarter of 2016, 27.2% higher than that recorded during the same period of the previous year.

In second quarter of 2016, the Central Bank stock of international reserves increased by $936 [million], reaching a total balance of $30.5 billion. During that quarter, the Central Bank bought $2.3 billion in the foreign exchange market. The Central Bank maintains the bilateral currency swap agreement entered into with the People's Bank of China.

Further, since February 2016, the Central Bank has added ARS5.0 billion from a repo transaction with private banks. The Badlar interest rate for private banks increased by 277 basis points in the second quarter of 2016, averaging 30.2% compared to the 27.5% average rate in the first quarter of 2016.

The stock of private sector loans in pesos increased in the second quarter by 3.9% compared with the balance of first quarter of 2016, while private sector loans in dollars increased by 59%. Total deposits in the financial system increased by 7.5% in the second quarter, and in the same period, private sector deposits denominated in pesos increased by 7.5% and those denominated in dollars increased by 1.2%.

Now let's dive into the Bank's performance. BBVA Frances reached an accumulated net income of ARS2.1 billion at the end of June 2016. During the second quarter, the Bank registered a gain of ARS963.3 million, increasing by 44.4% compared with the same quarter of 2015, while decreasing by 17.3% compared to the previous quarter. Net financial income grew by 69.4% compared with the second quarter of 2015, mainly due to higher gains derived from the public bond portfolio as well as higher intermediations with the private sector.

Income from securities and short-term investments included non-recurring income originated by variations in the valuation of the public securities. Such results totaled a gain of ARS288.9 million during the quarter under analysis, whereas losses of ARS204.8 million and ARS158.8 million, respectively, were registered for the same quarter of 2015 and for the previous quarter. Both, the line items, CER adjustment and foreign exchange difference reflected important gains compared with the same quarter of 2015, mainly due to depreciation of the Argentine peso in December 2015.

Provision for loan losses increased compared to the second quarter of 2015 due to the higher volume of lending and the deterioration of the loan portfolio. 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.

Net income from services, not taking into account the previously mentioned reclassification, increased by 16.4% compared with the same quarter of 2015, mainly due to higher consumption with credit cards, higher fees generated by an increase in the stock of deposit accounts and those associated with insurances 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 a LATAM Pass kilometers program.

Annual variation of administrative expenses was 39.5%, while compared with the previous quarter, the increase was 5.5%. Personnel expenses increase in both, the annual and quarterly comparisons, mainly reflecting salary increases and a higher number of employees.

General expenses, as adjusted, increased by 33.8% annually and by 3.5% during the quarter. The annual increase was mainly due to higher advertising and promotion charges related to commercial campaigns made by the Bank, as well as to higher electricity and communications charge due to tariff adjustment.

In addition, other expenses grew in line with the general increase in prices and the depreciation of the currency. During the quarter, higher expenses in advertising and taxes were partially offset by lower maintenance expenses, registered in Others line item.

In connection to the activity levels, the private sector loan portfolio, net of allowances for loan losses, totaled ARS65.8 billion at the end of June 2016, representing an increase of 40.1% and 11.3% compared to the second quarter of 2015 and to the previous quarter, respectively.

In the last 12 months, consumer loans increased by 33.5%. Such increase was mainly due to the outstanding performance of credit cards, which registered an increase of 45.6% during the period, while car loans and personal loans also registered increases of around 20%.

Commercial loans increased by 47.6% in the same period, mainly due to a higher portfolio of advances and foreign trade operations. The Bank increased its private loan market share reaching 6.9% as of the second quarter of 2016.

BBVA Frances continues to maintain the best risk indicators of the Argentine financial system. The non-performing loan ratio reached 0.85% at the end of June, while the coverage ratio reached 247.83%. Exposure to the public sector National Government increased by 62.3% compared with the second quarter of 2015 and by 6.7% compared with the previous quarter, mainly due to the purchases of national government bonds.

The Bank portfolios of Central Bank bills and notes showed an increase during the period under analysis and in the last twelve months in accordance to the liquidity policy implemented by the Bank. On the other hand, private debt grew mainly due to the subscription of negotiable obligations.

Total deposits reached ARS92.8 billion as of the end of June, representing an increase of 54.7% in the last 12 months and 15.9% during the quarter. During the last year, both sight accounts and time deposits registered significant growth, increasing 56.5%, and 52.4%, respectively. It is important to mention that transactional deposits represent 58.1% of the Bank's total deposits.

BBVA Frances maintains adequate levels of liquidity and solvency. At the end of June, liquid assets represented 46.8% of the Bank's total deposits. The capital ratio reached 15.1% of weighted risk assets with an excess of capital of ARS6.8 billon, which is 80.6% higher than the minimum regulatory requirements. During July, 2016, the Bank paid cash dividends totaling ARS900 million, corresponding to the 2015 period.

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

(Operator Instructions) Frederic de Mariz, UBS.

I have a couple of questions. The first one is more of a discussion on the asset quality. We saw that the NPL ratio [decreased] in the quarter, which maintained the coverage ratio at a very high level, close to 250%. I wanted to understand why the level of provisions continue to be quite high, why the cost of risk was so high in the quarter and also get your sense on the coverage ratio, if you think this is a good level, if you think it could normalize at a lower level going forward. So just wanted to have your thoughts, first on the provisions by segment trends, and then I'll come back with the second question.

Regarding the coverage level, the [thing has been] so high mainly because in the retail portfolio, we used to have, until June, many provisions higher than that are required by Central Bank. We used to have 1.5% provision in the retail portfolio. As we've said for this second part of the year, we will make provisions in line with the require of the Central Bank and the other thing is that we tend to write-off 100% provisions in advance than the require of the Central Bank, that explain why our coverage ratio is so high.

Got you. So, do you have a sense of where it should be in the second half? You mentioned up to June, you were higher than the Central Bank requirement. So what should we expect in terms of cost of risk for the second half of this year?

We have to expect 1% provision for every new loan in the second part of the year.

Got you. That's great. And then my second question is on the tax side, you mentioned briefly on your comments that the effective tax rate was high because of the Bogar 20 or some public securities and also because of provisions. Can you go into a bit more detail, so just to clarify why the effective tax rate was so high, and also what should we expect in the second half?

Regarding the Bogar 20, the thing is like, it is a bond-only transaction from (inaudible). So, it's a bond that has no market, but the Central Bank published a rate to mark-to-market that is in the accounting. In the fiscal balance sheet, the thing is that during the quarter, it was a market, it was a sell in the market, so that speaks to the price of the bond. So we have to adjust in the fiscal balance sheet, that is why we have a higher tax rate.

The other part is the provisioning of loans [that start] in May, we present the final income tax statement, so we adjust the figure for 2016 since January with a new or with a real figures for 2016. I don't know if I'm clear with that. It's not easy to understand. And you have --

Go ahead, sorry.

(multiple speakers) 35%. The thing is that with these things, that these non-recurring things, sometimes we have a deferred income rate.

Okay. So 35% is the normal rate we should use going forward. I think, I understand that the provision adjustment for 2015, that look like a one-off. For the Bogar 20, how confident do you feel that we could not have other adjustments in the coming months or quarters?

(technical difficulty) I can assure you that would be only [25%] but sometimes, once a year, I don't know.

(Operator Instructions) And it appears there are no questions at this time.

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

And ladies and gentlemen, this does conclude today's conference. Thank you everyone for your participation. You may now disconnect.