Banco Bbva Argentina SA (BBAR) 2017 Q2 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' 2Q '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 forward-looking statements within the meaning of 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.

Now I'd like to turn the conference call over to Mrs.

Cecilia Acuna, Head of Investor Relations.

Mrs.

Acuna, you may begin your conference.

Great.

Thank you.

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

I'd like to make a brief review on the macroeconomic environment.

During the last month, economy has shown signs of recover.

Real GDP grew 0.3% in the first quarter of 2017 compared to the same period in the previous year.

Inflation was 5.6% in the second quarter according to the Buenos Aires CPI.

The variation in comparison to the same figure of 2016 was 23.4%, reflected a decline in trend.

In July 2017, the index published a national CPI, which covers the entire Argentine territory.

The period report included information since January 2017 and shown mostly inflation of 1.2% in June with accumulated inflation of 11.8% in the first half of the year.

The Central Bank will use this index as the reference stabilization's coefficient and as the reference to set monetary policy with an inflation target framework.

Now let's dive into the bank performance.

BBVA Francés has implemented an ambitious growth plan.

In this regard, it has added 400,000 new clients in the last 2 years, 68,000 in the last quarter.

This strategy has been developed through both traditional and digital channels, the latter allows adding customers quicker, at a lower long-term cost.

Acquisition costs have a full and immediate impact on the income statement, while revenues coming from these new accounts as (inaudible), affecting the potential for generating results in the short term.

BBVA Francés reached net income of ARS 1.3 billion in the first 6 months of 2017 while the result for the quarter registered a loss of ARS 282.9 million.

It is important to mention that the first quarter of the year included a net profit of ARS 1.2 billion due to the reduction in the provision for the income tax resulting in the application of inflation adjustment in the calculation of tax for the fiscal year 2016.

Subsequent in May, the Central Bank requested to record a provision for possible contingencies for the same amount.

Without issuing adjustment on the fiscal transition adopted by the bank, we remain unchanged.

Therefore, without taking this effect into consideration for both periods, the net income for the second quarter reached ARS 902.8 million compared to ARS 419.9 million for the first quarter.

The net financial income showed a good performance during the quarter, increasing 12%, mainly due to the growth of activity and improvement of the funding mix in addition to lower average balance of physical bills in local currency.

The mean ratio fell 31 basis points, mainly due to the [graded] waste of activity in dollars, which has a smaller margin while the NIM by currency remains favorable when compared with the previous quarter.

In terms of fees, it continues to show a positive trend, principally those associated with deposits account, both due to price increases and a larger volume of activities.

Commissions generated by credit card reflect an increase in the consumption volumes above the market, which was offset by the impact of the reduction in the merchant discount rates implemented in April, situation that will begin to regularize in the next quarter mainly through renegotiation of alliances.

The expenditures increased 57.2% compared to the second quarter of 2016, explained by higher commissions paid for the LATAM bus Program.

Administrative expenses increased 4.5% in the last 3 months and 36.9% in comparisons with the same quarter of 2016.

Personnel expenses grew 4.3% and 30.8%, while general expenses increased 4.7% and 45.5% in the same period.

Although expenses for carryover cash show above-average variations, the improvement in monthly evolutions reflect the actions implemented by the bank.

Finally, our [deflations] grew mainly due to investments in technology and starting this quarter, also due to the inclusion of the new corporate headquarters.

The efficiency ratio reached 65.5% for the quarter, falling 190 basis points in comparisons to the preceding quarter.

Efficiency is a priority for BBVA Francés, and it has the goal of normalizing this ratio in the coming quarters, both by generating rated incomes and by implementing specific expenses reductions plans.

Now in connection to the activity level, the private sector loan portfolio totaled ARS 89.5 billion, growing 8% and 35.9% in the quarter and in comparison to June 2016 balance respectively.

During the year, consumer loan registered a growth of 33% with performance highlighted in both personal loans and car loans, which grew at a base of 53%.

BBVA Francés is working to be a leader in the mortgage market with presence and growing dynamic in monthly sales, and we expect to continue in the coming years.

Commercial loans grew 41% in the last 12 months with an important dynamism in dollar loans.

Total NPR ratio remains at 0.85%, similar to the previous quarter and to the same quarter of 2016, while recovery ratio was 243% at the end of June.

The quarter freeze at the same period was 1.32%.

In terms of liabilities, total deposits reached ARS 125.7 billion, growing at a slower rate this quarter of 2.3%, mainly by the allocation of foreign exchange deposit to mutual funds, while they increased 35.4% compared to June 2016.

Site deposits represented 62% of the total deposits in pesos compared to 57% in the previous quarter.

BBVA Francés maintained high levels of liquidity at the end of June.

Liquid assets represented 43.4% of bank deposits compared to 47.4% the previous quarter.

The capital ratio reached 13.1%, 63 and 242 basis points less compared to March 2017 and through the second quarter the previous year, respectively.

It is important to mention that the July 2017 BBVA Francés carried out a primary follow-on equity offering in Argentina and abroad, issued USD 388 million.

BBVA Group maintains control of the entity with 66.55% of the share with the remaining 33.45% refloat.

The objective of the issuance is to sustain the ambitious growth plans, as mentioned, taking advantage of the opportunity that exists in both the retail and commercial business line.

Our term BBVA Frances payout, ARS 911 million dividend for the fiscal year 2017 equal to 1.49% per share.

Thank you very much.

We are now ready to answer your questions.

(Operator Instructions) And our first question today comes from Gabriel [Lobreca] from UBS.

My question is more on your tax adjustments.

I had understood that in 1Q, it was more than one-off, and that should have normalized in 2Q, but we actually didn't see that.

And I just want to understand if we will see a normalization in 3Q and 4Q, or will we continue to do this inflationary counting.

And my second question, it's on fees.

We also saw that you guys were negatively impacted by the new rules on MDRs and the agreements with merchants.

I just want to get a bit more color and a bit more sense of what you were expecting until the end of the year, and if we should expect some more pressures in fee income.

Hello, Gabriel, this is Diego Cesarini, Head of Finance and IR.

Regarding your first question, the tax adjustment, we made it for the last year fiscal affidavit.

This year, we are not adjusting our fiscal position with inflation.

I don't know if that answers your question, or if that was your, precisely your, the question you asked us.

Regarding fees, we think that we are showing a positive behavior regarding the incumbent fees that is mainly offset by our expenses in fees.

That is regarding our loyalty programs and the expenses we are taking because of our growth in clients.

Regarding the merchant discount fees, we have started last quarter to renegotiate some of our alliances, and the effects of that will be seen through the next quarters and mainly during the first quarter of 2018.

There, we will see the full impact of the renegotiation of our alliances, but we will start seeing some of that impact there in the next quarter.

We have seen a very positive behavior on fees that we get from deposits and on credit cards, even if the fees go down because of this change in the regulation.

We are gaining market share on consumption.

Last quarter, we -- those fees grew at around 6% compared with the 4% of the market.

So we really are hoping to -- that we'll start showing a better performance on this issue.

Our next question comes from Alonso Garcia from Crédit Suisse.

My first question is, well, my question is regarding the NII.

First, I would like to see if you could at least quantify the impact from the valuation of the Bogar 20 bond.

And also, you posted an improvement in the cash balance as a percentage of your deposits during the quarter.

And do you expect further improvement in the quarters to come?

Or do you think this is the new normal after the change in regulation last year by Central Bank?

Thank you, Alonso.

Well, regarding Bogar 20, yes, all the [serif] curve, the inflation adjustment bonus, the government took a hit during the second quarter.

We made a calculation that it hit us at about ARS 40 million.

If the yield curve of the inflation adjustment was had kept unchanged, our results would have been ARS 40 million higher than what they were.

Regarding the cash balances, we have shown an improvement during this quarter.

They represented in on average around 6% of our deposits.

We are expecting further improvement for next quarter.

Our normal level is around 4% of deposits.

We are not expecting to reach that level this year, but probably we will show an improvement to a level of 5% in this quarter and next one.

If you calculate this in the second quarter, we calculate that this excess of cash in our branches has an impact of around ARS 100 million.

That's the cost.

(Operator Instructions) Our next question comes from Frederic De Mariz from UBS.

Just 2 questions.

The first one is a follow-up on the tax issue.

Can you just confirm that there will be, or I should ask, will there be some next chapters in your discussion with the tax revenues in the district?

Is it a district that could go to the courts, in terms of the taxes that you need to pay related to 2016 income?

I just wanted to be clear if the second quarter was the end of the story or that we could expect some new news in the following quarters?

That's just for the follow-up.

And the second question I have is more on growth.

You've shown a good recovery in growth, especially in some segments like mortgages, but when we look at Francés compared to other banks in the system, your growth was lower, so I was curious to hear your thoughts of what are your plans for the next quarters.

What could you do differently?

Are you planning to take on more risks going forward?

And I'm thinking more for organic, but also for inorganic growth if you are seeing any opportunities and if you could share your thoughts on this.

Regarding the tax issue, we consulted this is the last chapter, as you said.

We are not planning to adjust our 2017 affidavit by inflation.

And regarding the state of this issue, well, we have presented this declarative action of indemnity, and we are still waiting for some answer from the tax authority.

We haven't had any news after we presented that affidavit, adjusted by inflation.

Regarding the growth, well, it is true that we had a slow start of the year.

Growth is starting to pick up fast.

We had a couple of good months starting in May, and we are planning to grow, importantly during the remaining of the year and the coming years.

That's the main reason of our increasing capital.

We are foreseeing a market that is starting to pick up, and we want to gain market share certainly during the next periods.

We have a good performance in mortgages.

The sales are doubling every 2 months.

We have good -- we have a very good position on car loans and that we are keeping our high market share, but we are also seeing a very important growth in dollar loans.

And we are forecasting also important growth on SMEs, in small and mid-cap companies.

So we expect to over-perform the market during the next quarters, and we are also increasing our forecast for the year.

We are expecting the market will grow at a 39%, maybe 40% in loans during this year, and we are going to over-perform the market.

Sorry, regarding organic or inorganic, our basic plans are organic.

We have a plan to do it organically, but we, as we always say, we analyze every opportunity that comes to the table, and we cannot rule out seeing inorganic opportunities.

(Operator Instructions) This question comes from Neha Agarwala from HSBC.

This is Neha Agarwala from HSBC.

I wanted to follow up on the loan growth.

As it was mentioned that your loan growth was slower than what have seen in for completive [collusion] and macro, what was the main reason for this total?

Was it the demand or supply factor?

And how do you expect to expedite growth in the coming 2 quarters?

Do you want to compete on pricing?

Or do you have any other strategy in mind for accelerated loan growth?

Well, as I said, we are forecasting and that we are going to outperform the market.

We see general demand.

We are seeing a pickup in every segment of the retail companies and big corporations.

Probably the results of the yesterday election will accelerate this growth, we hope.

And we are definitely going to use our excellent position in risk, our low NPLs.

We are going to push a little farther, maybe that always in a controlled environment.

We are developing online engines to work in a lot of products like mortgages, small and mid-cap companies, where companies are going to come to the bank and have a preapproved credit line.

We are reorganizing some of our business areas to capture this growth.

So we are very focused and we're decided to keep on this strategy.

We have already grown in clients.

Now that's going to be shown in activity.

So you're targeting more at cross-selling?

Yes, definitely.

We are acquiring clients, as Cecelia said.

We have already captured 400,000 clients in the last couple of years.

We are following very close the cross-sell that we are doing on those clients, and we are seeing that they are performing well.

So definitely, we are going to cross-sell these new clients and of course, try to keep cross-selling our old customer.

(Operator Instructions) And ladies and gentlemen, this will conclude today's question-and-answer section.

At this time, I'd like to turn the conference call back over to Mrs.

Acuna for any closing remarks.

Okay, 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 lines at this time and have a nice day.

Okay.

Thank you very much.