Banco Bbva Argentina SA (BBAR) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Banco Frances Fourth Quarter 2016 Results Conference Call. We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during both Company's presentations. After the Company's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. (Operator Instructions)

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.

Now, I'll turn the conference over to Mrs. Cecilia Acuna, Head of Investor Relations. Mrs. Acuna, the floor is yours, ma'am.

Thank you. Good morning, everyone. As usual, we will start with a brief summary of the most important topics of 2016, and then we'll be open to questions.

BBVA Frances continues to focus on improving the customer experience in each moment of contact with the bank. To that end, the branch office network totaled 302 offices, including 251 consumer branch offices and 34 branch offices specialized in small and medium-sized companies and institutions.

Corporate banking is divided by industry, construction, 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, 728 ATMs and 789 self-service terminals. At the end of December, the Bank had 6,265 employees.

Now, I'd like to make a brief review on the macroeconomic environment. 2016 was a transition year in Argentina. The most relevant events were the normalization of exchange market, which began in December 2015, but with full effect in 2016; the arrangement with the holdouts; and the standardization of the National Institute of Statistics and Censuses.

In addition, the delay in the rates for public utilities, water, gas, transportations, began to be regularized and in the fourth quarter of 2016, the Law of Tax Amnesty was put into effect. As a result, in the first and second stage, assets of the order of $92 billion were declared. There was a one-time increase in income from the payment of the penalty for sincere assets amounting to approximately 1% of GDP in December. Economic activity contracted to 3.8% year-on-year at the end of the third quarter of 2016, due to the relative price changes resulting from the regularization of the economy.

Prices reflected effects of both the devaluation resulting from the normalization of the exchange market and the adjustment of tariffs, increasing by 6.2% in the fourth quarter of 2016 and 41% annually, measured by the CPI of the City of Buenos Aires. Inflation began a process of deceleration in the second half of the year.

The national public sector fiscal balance reached a primary deficit of ARS359.4 billion during the year, an increase of 52.9% compared to the deficit of the previous year. In the FX market, the peso registered a 21.9% devaluation in 2016, reaching an exchange rate of ARS15.85 per $1 at the end of December.

Now, let's turn into the Bank's performance. As of December 31, 2016, BBVA Frances reached a cumulative net income of ARS3.6 billion, registering ROE of 24.1% and ROA of 2.8%. Net financial income increased by 31.5% in annual terms, mainly due to a greater intermediation with the private sector and higher gains generated by foreign exchange differences, which was partially offset by an increase in financial expenses, due to higher average interest rates in 2016 compared to the previous year and a higher velocity of impact in liabilities.

It is important to highlight that both, the increase in the minimum cash requirement implemented since June 2016 and the higher stock of bills, which grew 115% during the year, without the possibility of allocate it as part of the cash requirement, had a negative impact in the net interest margin.

Net income from services grew 17.6% during 2016. Service charge expenses increased at a faster pace than service charge income, mainly due to higher fees paid related to discounts and promotions for credit card purchases and campaigns to attract customers, generating an increase of more than 20,000 customers.

In the same period, administrative expenses increased by 44.8%, mainly reflecting the growth in personnel expenses, consequence of wage increases and higher remunerations paid, [we] registered a growth of 100% during the year, in addition to an 8% increase in the number of employees. General expenses increased due to higher volume of activity, general price increase, the depreciation of the currency and higher tariffs.

Regarding the fourth quarter, BBVA Frances reached a net income of ARS582.4 million, registering a decrease compared to both the same quarter of 2015 and to the previous quarter. Price variation is mainly explained by a higher minimum cash [requirement], and the higher stock of bills, as I mentioned previously, commercial campaigns to attract customers, resulting in higher service charge expenses, growth in personnel expenses as a consequence of wage increases and higher remunerations paid, higher charge in other income expenses mainly due to higher provisions for other contingencies, and higher effective tax rate mainly due to the fiscal adjustment of provisions for other contingencies, and the fiscal revaluation of the Bogar 20 bond. In addition, a new 15% tax over the results accrued by foreign currency futures was applied.

In connection to the activity level, the private sector total loan portfolio, net of allowance for loan losses, totaled ARS78.9 billion, increasing by 39.5% compared to December 2015, registering 22 basis point increase in market share, which reached 6.7% by the end of the year. Such increase was based mainly on higher commercial loans, which grew 67.5%, while consumer loans grew at a slower pace, 21.8%.

During the last 12 months, loans denominated in pesos increased 26.3%, whereas those denominated in foreign currency grew at a faster pace, registering higher volume of foreign trade operation, as a consequence of the release of the restrictions in the foreign exchange market and the elimination of import restrictions. BBVA Frances continues to maintain outstanding risk indicators in the Argentine financial system. The non-performing loan ratio reached 0.77%, while the coverage ratio reached 262.6% at the end of December.

The public sector National Government assets represented 3.5% of the Bank's total assets. Total exposure to the Central Bank's bills and notes, net of holdings linked to reverse repo transactions, represented 4.8% of the Bank's total assets.

In terms of liabilities, total deposits amounted to ARS114.6 billion, an increase of 49.1% in the last 12 months, during which period sight accounts registered a significant performance, growing 48.8%, while term deposits grew 13.8%. It is important to note that as a result of the implementation of the tax amnesty law, deposits denominated in foreign currency registered an important increase in the last quarter of the year.

BBVA Frances maintains adequate levels of liquidity and solvency. At December, liquid assets represented 48.5% of the Bank's total deposits. The capital ratio reached 13.8% of the weighted risk assets, with an excess of capital of ARS6.8 billion, which is 64.7% higher than the minimum regulatory requirements. Considering the additional buffer, 3.5%, the excess of capital would amount to ARS2.4 billion.

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

Thank you, ma'am. The floor is now open for questions. (Operator Instructions) Alonso Garcia, Credit Suisse.

First, I would like to touch base in regards to fees. Do you expect to continue executing customer acquisition campaigns throughout 2017? And if so, what kind of net fee growth should we expect for this year?

My second question, do we expect the situation in regards to the stock of deals to materialize -- sorry to normalize in the coming quarters and, therefore, can we expect NII growth to be more in tandem with loan growth or maybe even above this year? Thank you.

Regarding the first question, the campaigns finished in the first month, I think in January. So, we expect something more normal for the rest of the year. (inaudible) with gaining of more than 20,000, 25,000 new customers.

And could you repeat the second question, please?

Yes. In regards to the situation of the stock of deals that grew materially, do you expect the situation to normalize in the coming quarters and, therefore, can we expect NII growth to be more in tandem or even above that of loans? Thank you.

Okay. Yes, there is some measures and some discussions regarding the stock of bills, I think probably in the next quarter we see something more normal. The thing was that these bills can't be allocated as minimum cash requirement, so that is very expensive for the Bank. And there are -- in this moment, there are some discussions regarding that kind of measures to take in order to normalize the situation.

Juan Vazquez, Puente.

My first question is regarding the higher provisions for all contingencies that we saw in this quarter. I was wondering if you could give us some more color on that.

And the second question is regarding the funds that you receive from the Tax Amnesty, the dollar deposit. Do you have an expectation regarding what's going to happen with those funds once they are liberated after March 31 these funds are going to be converted in pesos, what do you think the impact in terms of funding these deposits are going to have? Thank you.

Okay. Regarding the provisions, there is a specific situation that we need to make more provisions for that contingencies. And (inaudible) the deposit that we receive, we are very conservative to maintain the deposits and bills. They may -- I think that is in the mid of May, and then probably it depends on what happens with them, we'll see what we are doing with that. But now we are very conservative and we are not lending that in dollars.

Okay. That makes sense. And just as a follow-up, so the higher provisions, so we don't have a breakdown of what those provisions really mean?

It's a commercial -- it's a loan issued and probably it's one-time, it's a specific situation.

(Operator Instructions) Carlos Gomez, HSBC.

Perhaps to go back to the other income and expenses, that contingency, if I understand correctly, what you're saying is that this is a loan or a security for which you are having to make a provision, but it will be equivalent to a credit loss. We want to understand that it's still not clear what the origin of this is?

And second, could you go a bit more slowly about the reasons for your high tax rate? I would like to have more clarity on that. Thank you.

Okay. No, it's not a provision for loan, it's like a suit against the bank regarding, I think, (inaudible) the reason, but it's like a suit.

Okay. So it's a legal contingency?

Yes, exactly. It's a legal one.

Legal --

And then in terms of a higher rate for the income tax, there's three main reasons. One is the provisions -- these kind of provisions that we have to adjust for fiscal balance sheet. The second one is the revaluation of the Bogar 20 that has an operation in the market, so the fiscal value has to be adjusted. And the third one is a new tax that is [15%] of a gain coming from forwards.

So, again, for the contingency, that would mean that, if I understand correctly, your contingency would not be tax deductible, is that right, is that the way that we heard it?

Exactly.

Okay. And then for the Bogar, this is an adjustment to the fiscal value of the Bogar, so is there an equivalent adjustment to equity, or this is just a fiscal effect?

No, it's only a fiscal effect. The Bogar is a bond that only have BBVA Frances and Santander will have no market, but the Central Bank release a rate similar to the [Bogarian] team to mark-to-market. But once these operations in the market, that fixed market price for the bond, we have to adjust this fiscal valuations and it's because of that we see some increase in tax income rate.

Now, if there is another operation which has, let's say, a lower value, you would adjust the number down and then we could see a reversal of this tax?

Exactly, yes.

Okay. And then this is Bogar 20, so we have another three years to go, right?

Exactly.

At this time, there appears to be no further questions. We'll go ahead and plan to conclude today's question-and-answer session. At this time, I'd like to turn the floor back to Mrs. Acuna for any closing remarks. Ma'am?

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

And we thank you ma'am for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you, take care, and have a great day, everyone.