Banco Bbva Argentina SA (BBAR) 2017 Q1 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 Francés 1Q '17 Results Conference Call.

We would like to inform you that this event is being recorded.

(Operator Instructions) First of all, let me stress that some of the statements made during this conference call may be the forward-looking statements within the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. 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 Francés annual report on Form 20-F for the fiscal year 2016 filed with the U.S. Securities and Exchange Commission.

The conference call has the presence of Ignacio Sanzy, CFO; [Diego Sasorini], Head of Financial Management and IR; and Cecilia Acuna, Investor Relation Officer.

Now, I will turn the conference over to Ms. Cecilia Acuna.

Head of Investor Relations Miss Acuna, you may begin your conference.

Thank you.

Good morning, everyone.

As usual, we will start with a brief summary on the most important topics of the first quarter of 2017, and then we be open to questions.

I would like to make a brief review on the micro economic environment.

Economic activity measured by the change in [real GDP] showed a contraction of 2.3% in 2016.

After results of the change of relative prices due to the normalization of economy.

In the first 3 months of the year inflation measured by the CPI (inaudible) Buenos Aires was 7.1%, reaching 35% year-over-year.

The government allowance quarterly fiscal targets for 2017 as well as annual revenues and expenditures.

The permanent fiscal result registered executive of ARS 41.3 billion in the first quarter of the year, we were 10% lower (inaudible) of the same period of 2016.

On the other hand, the financial results that includes interest rate of ARS $70.6 billion, showing a deterioration of 9.4% compared to the first quarter of 2016.

In the FX market, the peso appreciated by 3% in the end of 2016, owing from an extreme price of ARS 15.85 per U.S. dollar, ARS 15.38 at the end of March 2017.

On the same day, international retail amounted $50.5 billion, an increase of $11.8 billion compared to the balance at the end of the previous year.

The budget interest rate for private banks decreased by 129 basis points in the first quarter of 2017, averaging 19.8%.

The stock of private-sector note in pesos increased by 4.8% during the quarter and 25.1% compared to the first quarter of 2016.

While private depositing pesos grew 1.7% and 25.2% for the same period.

Now, let's turning to the bank's performance.

As of March 31, 2017, BBVA Français reaches a net income of ARS 1.6 billion, 175% above the previous quarter and up 37.10% compared to the same quarter of 2016.

This result includes nonrecurring effect with both positive and negative times.

Net of this impact, profit was 10.8% above last quarter and similar to the first quarter of 2016, reaching an ROE of 24.4% and a ROA of 2.5%.

The first quarter of the year included a net positive result of ARS 1.2 billion due the application of inflation adjustment in calculating the 2016 income tax.

And a charge of ARS 393.6 million, corresponded to the regularization of the Social Security contributions right used from December 2013 to March 2017.

Net financial income increased a 5.8% decreasing comparative to the previous quarter, while it grew 2.8% compared to the first quarter of 2016.

Financial margin was affected by the negative income generated by the increase in the stock of cash and the appreciation of the peso.

Without considering these effects, the variations would be 3.5% and 19.4% for the period mentioned.

So (inaudible) with the private sector we grew 29.8% compared to the third quarter of 2016.

At the end of March, (inaudible) ratio was 11.7%, reflecting a decline of 77 basis points in the quarter, which is explained by 2 factors: The increase in the activity in dollars, and the decline of the indicator in peso, caused exclusively, by the greater stock of cash.

It is important to emphasize that the price spread continues to show a good behavior.

Net income from services grew 14.6% in comparison to the previous quarter and 32.5% compared to the first quarter of 2016, while in recurring trends, they increased 6.1% and 39.2%, respectively.

Income from services increased (inaudible) principally by credit card consumption and higher activity on price for the (inaudible) account.

Service tax expenses were 5.6% in comparison to the previous quarter, which included higher commission spent for the campaign for attracting clients which generated an increase of more than 28,000 new clients.

While the annual variation is explained by higher commissions based for the LATAM (inaudible) Program (inaudible) . And the (inaudible) expenses increased 1.3% in the last quarter and 38.3% in comparisons with the same quarter of 2016.

In the quarterly comparisons, personnel expenses registered a decline of 3.5% since the payment of a fixed amount according to their agreement and the year-end compensations were included in the previous quarter, offsetting the salary increase starting in 2017.

Meanwhile, such expenses showed an increase of 34.1% compared to the same quarter of 2016, mainly due to the salary increase as well as 6% increase in the number of employees.

General expenses increased 8.2% over the previous quarter and 44% year-over-year, due to high expenses for carry of cash, which showed variations above the average, both during the quarter and compared to the first quarter of 2016.

A [greater] investment in technology and maintaining the cost related to the most of the new corporate headquarters.

As of March 31, 2017, the private sector loan portfolio net of allowances for loan losses total ARS 82.9 billion, increases by 5.1% and 40% compared to their previous quarters and to the same quarter in the previous year, respectively.

During the year, consumer loan registered a growth of 30.5%, both personal loans and car loans grew 41.7% and credit card deduct is lower price, commercial loans were 55.2% for the same period.

In the last 12 months, loans denominated in pesos increased 23.9%, while those denominated to foreign currency did at a faster rate, with a large volume for (inaudible) to finance foreign trade operation.

BBVA Francés maintains a leading position in the Argentine financial system in terms of asset quality.

At the end of March, the nonperforming loan ratio reached [0.84%] while the current ratio -- reached 248.3%.

Regarding liabilities, total deposits reached ARS 122.8 billion, recording an increase of 53.3% in the last 12 months.

In the year, site account increased 52% while time deposits grew 24.1%.

In terms of currency, depositing pesos grew 21.8% in the last 12 months, while those denominated in foreign currency increased significantly, mainly as a result of the application of these (inaudible) Earning (inaudible) , representing 33% of the bank's total deposits at the end of the first quarter.

The income statement then has high level of liquidity -- liquid assets represented 47.4% of the bank's total deposit.

This ratio is about 75% for the (inaudible).

The capital ratio reached 13.8% of weighted risk assets with an excess of capital of ARS 7.6 billion pesos, which is 44.5% higher than the minimal regulatory requirement.

Considering the additional buffer, 3.5%, the actual capital will amount to ARS 2.8 billion.

It is important to mention that at the shareholder's meeting, a cash dividend distribution of ARS 111 million was approved.

The payment is subject to the authorization from the Central Bank.

Thank you very much.

We are now ready to answer your questions.

(Operator Instructions) The first question will come from Alonso Garcia of Crédit Suisse.

My question is in regards to margins.

When do you expect the stock of bills to normalize lower levels and based on that and the rest of the variables, how do you expect a means to evolve for the remainder of the year?

Hello, Alonso, this is the Diego (inaudible) . Well the stock of bills has gone up in a very strong way during the first quarter of the year.

Even though we had that problem since the beginning of last year.

We are doing a lot of actions just to take care of this problem.

And till the end of this last quarter, the stock of bills was lower and that improvement continues during this quarter.

Here, you have to understand that the bank has a collection business.

We collect a lot of bills from our customers.

And during some parts of the month, usually the Central Bank took these bills from us, we could deposit these bills from Central Bank and Central Bank credited our account.

But since the last part of last year, bank is not doing that any more.

So that's why, that explains why we have this problem that was very, very huge during the first 2 months of the year, especially.

And now we are working on a lot of subjects here.

We are trying to receive less bills from customers.

We are working on fees, on this kind of operator.

And we are working also on the expenses that the transport of these bills brings us.

So we are hoping that this -- the worst of this event has already happened.

And we will be showing better performance on this subject during the next quarter.

The second part of your question.

The spread have been showing not a bad performance during the last year.

Even though, the loans' rate have fallen around 300 basis points.

It is also true that our deposit rate considering side accounts have fallen more than that, around 380 basis points.

For the rest of the year, we are not expecting a huge impact, but as rates will continue falling during next year.

We for sure expect a decline on the NIM margin of around 200, 250 basis points during the next couple of years.

But up until now, this spread, the spread activities showing a good performance.

We're comfortable with that.

(Operator Instructions) Our next question will come from Fernando Suarez with AR Partners.

My question was mainly related -- maybe it is related to the NIM contraction.

And if we will see deeper contraction means regarding the so much increasing repurchase agreement, and other banking receivables?

As I said, the NIM is not showing a deterioration during the last year.

When we see the deterioration, maybe it's because of the mix.

Because you know the activity in dollars has grown above the activity in pesos and it has a smaller spread than the activity in pesos.

But until now at least, we have not seen a deterioration, we are not expecting during the rest of the year, smaller NIM, basically because the rate of deposits are falling faster than the rates of loans, however, portfolio of loans has a longer maturity than the one of deposits so, while interest rates keep falling, we will not see a deep contraction.

Maybe in 2 years in 2018 -- or 2019, as rates start to find the floor, maybe we will see a little more contraction but not for now.

We are not expecting it this year.

The next question will come from Frederic De Mariz with UBS.

I have a couple of questions.

The first one is on the growth side.

You posted a very healthy, very solid growth in the first quarter.

But it's a bit below what we've seen it at the other banks.

So I wanted to hear from you what you expect in the coming months?

If it's a problem on the supply side, on the demand side?

And what's your risk appetite right now and even considering everything we know about the economy?

The second question has to do more with the OpEx or CapEx.

We saw you open -- you moved to the brand new office.

Which has a big investment, a big commitment of the bank to the country.

Should we expect some lower spending?

Should we expect maybe some asset sales in other neighborhoods of some of your old branches or locations in Buenos Aires?

How do -- should we think of OpEx or CapEx for this year?

Well, hi Frederic, this is Diego.

Well, about growth, we have seen growth in line with market during the last year and this last quarter we think we are growing 40% in the year-over-year.

I think that's in line with the market.

And we have been focusing on regaining some share on the commercial business.

You know we have lost some share during 2014 and 2015, because that activity showed a very, very small levels of spread.

And it was not capital.

But during the last year, we had regain some of that share.

Of course, we are focused on gaining share too on the retail business.

We have been showing a better performance on consumer loans where we had lagged behind during the last couple of years.

We are of course one of the main players in the credit card business.

And we will keep focusing on that.

And we have recently started on the mortgage business, which we expect will have a big growth in Argentina during the last -- during the next years.

And of course, we are the leading bank in the car business.

We have almost 25% of market share.

And we are selling 4 every 10 new operations here in the country.

We are focused on growing.

We want to be bigger than we are now.

We have been gaining market share during the last 2 or 3 years, but at a smaller pace than we want.

So we are focused on growing on clients, on activity, on share, on cross-selling, and that's what we expect for the next quarters and for the next years.

Regarding expenses -- on OpEx expenses.

We have been investing in new technologies.

That's why we show a bigger gain in that kind of expenses during the last quarter.

We have both new ATMs and [GS], and more devices.

And about the new headquarters, the first impact is that we spent more during this quarter, because we had to move all the people from the old buildings to the new ones.

So that's why, that line shows a hit during the quarter.

But with time, these expenses will tend to go down, because this building is more efficient in every way.

We have plans to sell in time, time off the old buildings.

We are renting less offices with some of our offices, where we're renting them.

So well -- There is a plan to sell these old assets.

And we will see that when it occurs.

If I may, can you remind us your guidance for loan growth and OpEx growth?

And I'm sorry, if you mentioned it already.

Sorry.

Could you remind us your guidance for loan growth?

And your guidance for OpEx growth for this year?

And I apologize if you mentioned it already.

Sorry.

We are expecting around 35% of growth on loans in line with our budget.

And we were communicating to the market before.

That's great, and for OpEx?

OpEx?

I don't really have the figure right now.

I will tell you them.

(Operator Instructions) The next question comes from Carlos Gomez of HSBC.

Two questions.

First, maybe I cannot find it in your press release.

Can you disclose the adjustment to your net worth coming from the implementation of IFRS?

And second, you have been growing in the ForEx business, you have been lending money in ForEx and getting all these ForEx deposits.

Do you expect that to normalize at these levels?

Or do you expect to revert back to more pesos in the future?

Hello, Carlos.

Well first of all, we will start with IFRS next year as every bank.

Our impact is in the balance sheet.

I think we didn't mention it in the press release.

And our net worth should increase by ARS 3.7 billion.

That means around 280 basis points on the capital ratio, as of now, as of March.

I don't know if that answers your question.

On the side of business in dollars, well this activity has grown abnormally high during the last year.

And I remember in November 2015, only 9% of our deposits were in dollars, and right now that figure is around 35%.

We're not absolutely comfortable with that activity growing so fast, mainly because it's an activity where it doesn't have a lot of demand in loans.

Central Bank regulations, which we consider is right, it's a good regulations, very different from the one we had during the comparability.

But well, the demand is not that big and we are not able to lend as much as we wish.

But what we are trying to do is to send some of our deposits to our mutual funds.

We have recently opened a couple of funds that are meant to have that activity from our deposits.

We are trying to send -- we have started recently, at the end of the last quarter.

And until now it has been with good success.

So we are expecting to put that growth on hold.

Now we are seeing the release of the tax amnesty deposit.

So until now, we have not seen them going out from the bank.

We have been successful in sending them to coupons.

But to make it brief, we will try to normalize the balance as it was a couple of years ago.

Mainly, based on the peso activity and not so much in dollars.

And if I can ask you, what is your net dollar position?

Given that now you have permission to have a slightly more positive or more negative one?

No, (inaudible) it's around 10%...

(inaudible)

Long, long, sorry.

It makes no difference for us right now.

To the new limit that the Central Bank has announced, because we are not planning to go that high in this in the short term.

The next question will come from [Walter Sharevale] with Santander.

I would like to ask you, if you could develop a little bit further on the nonrecurring gains related to the adjustment, the application of additional adjustments on the taxes?

(inaudible) specific, what is the legal background behind that?

Or if you apply this in the past already, is it something that it should happen according to your view, you know companies in Argentina, because (inaudible) adjustment is not possible in Argentina that on the hand?

And the second point is, how this is going to be perceived?

You are declaiming the tax payment based on this adjustment to the tax office.

And the tax office could push back and tell you that you have to pay without this adjustment.

And this could be reversed in the future.

So if you could give us more detail on this would be very appreciated.

Hello, Walter.

Well, as we have mentioned in the press release, the Board of Directors of the banks resolve to submit our affidavit of income tax and to pay their corresponding 2016 tax.

It will to the (inaudible) adjusted by inflation.

That means that we are -- there is an income of almost $1.2 billion, net of acquisition cost.

As we mentioned in the press, we think that there are solid judicial precedence to support this decision.

Why are we doing this now?

Because in the past, in the past we have presented actions of indemnity for the 2013, '14 and '15 periods, that are still pending resolution.

But in this case, in 2016, the effective tax rate that we would have paid -- if we hadn't done this, would have amounted to 93%.

This is because the equity of bank -- of the bank is a monetary asset.

So if you don't adjust it by inflation, you are paying income tax but something that is not appropriate.

The leading case -- in this case is Candy versus (inaudible) 2009, in which the Supreme Court ruled in favor of the company and not the application of this adjustment.

In that case, the effective rate was not -- was much smaller than the 93%.

It was just 62%.

And after that case, there were other similar cases, where with similar rulings by the justice in which the effective rate was generally over 50%, but yet in one case, it was just 45%.

We are completely comfortable with this decision.

We are defending the interest of our shareholders.

And how this continues, well probably, the (inaudible) has something to say about this.

We have already informed them.

And if they try to reject this presentation, the bank will present an action of protection an Amparo.

And probably, there solution of this case will take between 7 or 8 years.

But we are 100% comfortable with this decision.

We think that the judicial precedents are in our favor, to support this decision.

And as I said, there have been other cases that were much less -- the effective rate was much lower than what it is in our case.

Okay.

And what I don't understand is why the effective rate would be so high in the case that you don't apply this.

It's 90% seems too high, and obviously my view is -- [is there inflation behind that]?

Because of the profit before tax, the bank has a profit before tax.

Part of this tax is inflation, it's not profit.

We don't have -- all our assets are monetary, are money.

We just had to take out the buildings, the fixed assets, but they are just 10% or 15% of our equity.

So when you adjust the assets and the liabilities by inflation, you see that 2/3 of our -- of that profit before tax is not profit.

It's just adjusting your equity by inflation.

That's how you calculate that 93%.

It's how much you would have paid, if you hadn't done this, divided by your real profit, let's call it.

The profit before taxes deducting what is just inflation.

That is how it is calculated in every case.

Not just in ours.

I don't know, if I was clear.

Yes, I mean, I understand your point, it's okay, I take the answer.

The next question is a follow-up question from Carlos Gomez with HSBC.

If you could follow up on this tax case so what you have done is you have used inflation accounting, you have calculated what your earnings would be in that inflation accounting, and therefore paid the corresponding taxes.

And can you tell us what your threshold in inflation rate did you use?

Second, what your earnings are in that inflation accounting?

We took (inaudible) And finally, if you succeed with this case, would it create correspondence and apply to all the sector?

Or each company has to file a claim individually (inaudible) Towards the tax benefit as you are expecting to have?

Well, the tax rate -- the inflation rate we used was 34.5 -- does anyone know which rate is this...(inaudible) Reduces.

(foreign language) (inaudible)

I think it's the wholesale inflation, but I will confirm you later.

You're second question was

What is your profitability in inflation-adjusted terms?

Well, for last year, before tax, that would have been ARS 6.2 billion our figure before tax.

And the tax we will be paying for that period is around ARS 100 million.

So that would be our -- but you have to understand that this is not -- this adjustment goes into the 2017 income and not on '16.

Given the lower tax?

Sorry.

The adjustments to your earnings would go -- or the lower tax would go into 2017?

I did not understand what you mean by that.

It goes to other (inaudible) . Sorry, I don't follow your question.

So, we're trying to see what your -- so if your tax rate will would be at ARS 100 million, but you are saying that, with inflation adjustment, your earnings would be no higher than ARS 300 million or ARS 400 million, is that correct?

Your pretax earnings?

No, I don't follow your thought, sorry.

Maybe if you want to put it other way, because our earnings before tax last year were ARS 6.2 billion, around $6 billion, let's say.

But not for ARS 100 million.

I don't follow you, sorry.

What I say is, for every bank, every company, when you see profit before tax, when all your equity is money -- part of that of those earnings are inflation.

You are not -- If you would -- inflation adjustment would have been permitted on the balance, not on the -- we wouldn't have shown a ARS 6 billion profit.

Yes, that exactly is my question, So what would your profitability be with inflation adjustment?

Around 2. -- now we understand you, around ARS 2.3 billion, ARS 2.4 billion.

Our calculations show that ARS 3.9 billion were not profit in this calculation.

ARS 3.9 billion were not profit, were just the adjustment of this net assets by inflation.

Now I understood your question.

Our next question comes from [Manuel Toure] with [Delfo Investment]

Yes, hello, I would like to ask how do you expect efficiency ratios to evolve given that they have deteriorated recently?

And by which quarter should they stabilize?

Okay, hello, Manuel.

Well obviously, we are not satisfied with our efficiency ratio, it hasn't been regular in the last couple of quarters.

Not just because there are some nonrecurring expenses, but because of the nonrecurring incomes too -- we are expecting -- we are embarking on a process of preservation of a lot of our expenses.

We are -- our target is to reach again a 50% level in a couple of years.

While, in the meantime, we will be seeing some actions.

We will be lowering cost of service use, reducing cost of mailings, transport of cash.

It's a line of business that has had a huge impact on our results, as I have also said before, we will be reducing some IT expenses.

So there are a lot of lines of where we are working here.

And of course, it's a priority for us to reach as quick as possible, a level that is more according with our history.

And you know that the efficiencies, the strategic issue -- not only for the bank, but for the BBVA Group.

Okay.

And do you have a guidance for this year?

This year, we are working with 57%, I guess.

in between 56% and 57%.

Our next question will come from [Arial Seer], a private investor.

I would to like to ask you regarding the inflation adjustment, do you plan to keep adjusting your profits next year?

You can (inaudible) adjustments?

Or you adjust for 2016?

Hello, Arial.

That hasn't been decided yet.

It will depend on results, on how much this (inaudible) breaks will be when the year ends.

So I cannot answer that with certainty right now.

Probably, no.

You adjust it because (inaudible) It is not for the first quarter 2017.

Just for 2016, right?

Yes, yes, yes.

It's just for the 2016 period.

We have not adjusted the first quarter of this year.

Sorry, I'm not (inaudible) . You said that your profit without the adjustment of the inflation, it can be ARS 3.9 billion, that was right?

Our profit in -- which period are you referring to?

In the press you have wrote, the previous question.

You said that in 2016, the profit without inflation it can be ARS 3.9 billion, that's the number?

No, no, I said that during the last year, ARS 3.9 billion of our profit corresponded to just to inflation adjustments.

So I think that Carlos or Walter has asked me, which would have been the result of last year, if inflation adjustments would have been permitted in the accounts you will see so I answered that it would have been around ARS 2.4 billion.

Because ARS 3.9 billion corresponded to just to inflation.

I don't know if I was clear, or is...

It's like ARS 6 billion minus ARS 3.9 billion, right?

The right, that's right.

The next question is also a follow-up question from Frederic De Mariz with UBS.

Sorry to insist on the tax rate, but just 2 quick follow-ups.

The first one from the previous question.

Do you have an idea of what the effective tax rate would be for this year?

Considering that you don't have this adjustment anymore?

And then the second question is a follow-up on Carlos' question.

That inflation adjustment that you applied for last year, I would imagine all the banks could be applying it, or is it something specific to you guys to BBVA?

Well, the second question, I cannot answer.

It depends on the figures that every bank -- each bank has.

We haven't made the calculations on their balance sheet.

So that I cannot answer.

I think they should answer this question.

And your first question, Frederic, was?

The effective tax rate for this year?

What should we use?

The effective tax rate for -- the one we would show if we didn't apply this same adjustment you say, because that would be around 35% as usual.

Okay, so the normal -- if there is normal adjustment, we should use 35%.

And if there is an adjustment, obviously, it will depend on inflation?

Yes.

This first quarter, the effective rate is a little higher, It's around 42%, 43%, because we had some special issues that I think we mentioned in the press.

But from now on, it should be a rate of 35% or maybe slightly below that.

Ladies and gentlemen, this concludes our question-and-answer section.

At this time, I would like to turn the floor back over to Miss Cecilia Acuna for any closing remarks.

Thank you.

Thanks again for joining us.

And if you have any further questions, please contact us in our offices.

Thank you.

This concludes today's presentation.

You may disconnect your line at this time, and have a nice day.

Thank you.