Banco Bbva Argentina SA (BBAR) 2018 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 the BBVA Francés' 4Q '18 Results Conference Call.

We would like to inform you that the 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 2017, filed with the U.S. Securities and Exchange Commission.

Today with us on the call, we have Mr. Ernesto Gallardo, CFO; and Mrs.

Cecilia Acuña, Head of Investor Relations.

Mrs.

Acuña, you may begin your conference.

Okay.

Thank you.

First of all, sorry for the delay.

We had a problem with the release in the stock exchange -- New York Stock Exchange.

Good afternoon, everyone.

As usual, I will start with a brief summary on the most important topics of 2018, and then we'll be open to questions.

I'd like to make a brief review on the bank's performance.

First of all, I'd like to remind you that since January 1, 2018, figures are reported in accordance with IFRS.

Having said this, BBVA Francés recorded an annual net income of ARS 9.6 billion at the end of December, registering 114.6% increase over the result of 2017; 28.5% average return on equity and 3.4% average return on assets.

Net operating income amounted to ARS 37.6 billion, increasing 56.5% compared to the previous year, while operating expenses amounted to ARS 24.7 billion, showing an increase of 34.5% during the period.

Revenues were supported by the growth in net interest income, which increased 79.9% during the year, mainly due to the rising interest rates, by net fee income results, which grew at a similar pace, and by the results generated by foreign exchange difference, which includes both the impact of the devaluation and of foreign exchange transactions, all of this partially offset by the increase of provisions for loan losses.

Regarding expenses, personnel expenses grew 30.3% in the year, below inflation, mainly as a result of the staggered payment of the salary increase, while administrative expenses grew 39.1% in the same period.

Accumulated efficiency ratio was 49.6% at the end of 2018, registering a decrease compared to the 60% in 2017.

In connection to activity level, at the end of December, the private sector loan portfolio totaled ARS 181.4 billion, maintaining similar levels to those of the previous quarter and increasing by 42.2% in the last 12 months.

As a clarification, as of the third quarter, Volkswagen Financial Services is no longer recorded on a consolidated basis.

So including the Volkswagen portfolio, loan growth would have reached 47.9%.

Loan consolidated market share was 8.71%, showing an increase of 40 basis points in the last 12 months.

Credit growth was affected during the year by the devaluation of the peso and high interest rates.

Loans in pesos increased 3.6% in the quarter and 22.3% in the last 12 months, 4.3% and 29.7%, respectively, including Volkswagen portfolio; while U.S.-dollar denominated loans decreased 2.4% in the quarter and increased 110.5% in the last 12 months, mainly due to the -- expression to the new value of the currency.

Meanwhile, measured in U.S. dollars, they increased around 6% in both periods.

At the end of December, the asset quality ratio of nonperforming loans over total loans was 1.92%, with a coverage ratio of 119.2%.

This indicator show some deterioration in the loan portfolio, mainly due to specific cases in the commercial portfolio.

The cost of risk reached 1.88%, recording an increase of 17 basis points during the quarter.

Total deposits amounted to ARS 259.5 billion at the end of December, increasing 5% compared to the previous quarter and 68.6% compared with the last quarter of 2017.

Foreign currency deposits denominated in pesos remained stable during the quarter and increased 75.1% in the last 12 months.

Deposits denominated in foreign currency increased 7.8% in the quarter and decreased 13% compared to the last quarter of 2017.

Local currency deposits increased 8.3% in the quarter and 65% in the year.

In November 2018, BBVA Francés issued a bond in -- linked to inflation for ARS 784.3 million, with 24 months maturity and 9.5% fixed rate.

Later in February, 2019, we issued 2 bonds in pesos: one for ARS 529.4 million, with 9 months maturity and a fixed 43% interest rate; and the other for ARS 1 billion, with 18 months maturity and Badlar rate plus 6.25%.

BBVA Francés continues to show an adequate level of solvency.

At the end of December, the total capital ratio was 14.3%, similar to the ratio of September.

The Tier 1 ratio was 13.5%, and the excess capital over the regulatory required capital was ARS 16.2 billion.

It is important to mention that the board of BBVA Francés has resolved to propose to the shareholders' meeting the payment of dividends in cash for a total amount of ARS 2.4 billion.

On February 1, 2019, within the framework of the Divestment Commitment assumed by Prisma Medios de Pago and its shareholders to the antitrust regulatory authority, the 51% of the bank's shareholding in said company was sold.

Thank you very much.

We are now ready to answer your questions.

(Operator Instructions) And our first questioner will be Gabriel Nóbrega with Citi.

Looking at your results, could you maybe talk a little bit more about what happened to your NPL ratios?

From which sectors are you actually seeing [these] from corporates?

And is there any strategy that you could be implementing in order to improve this?

And I'll make the second question afterwards.

Okay, Gabriel.

Mainly, in the situation in the NPL ratios and the coverage is that we have -- we made more provisions for [Molina Panella].

So not considering that situation, the NPL ratio would reach 1.2%.

So the company is restructuring the debt.

So it's because of that, that we have tax impact in this fourth quarter.

We made the provision in the third quarter actually, but the company is now performing in the fourth quarter.

All right.

That's very clear.

Could you also maybe give us a bit more of color on the strategy that you implemented in order to be able to increase your own personnel expense by only 20%?

And this is a bit tough here because being that inflation was above 45% and you're also having discussions with the banking union, I just want to understand which were the strategies that you implemented that you were able to only increase 20% year-over-year?

And also maybe if you could give some guidance on what you're expecting for the full year.

Okay, Gabriel.

It was 30% personnel expenditures during the year, and that is because this year -- or last -- the previous year, 2018, the payment of the salary increases were made like in installments, when the inflations occur.

The inflation ended the year at 47.6%, but if you -- in the average, we're more close to 33%.

So it's because of that.

In the previous year, the situation was that the increase in salaries were retracted to January.

That changed in 2018.

(Operator Instructions) And our next questioner will be Alonso Garcia with Crédit Suisse.

My first question is regarding asset quality.

I just want to follow up on this topic.

What's the outlook you are expecting for NPLs and cost of risk for this year?

And especially, if you think that this exposure in the corporate segment should continue to pressure asset quality metrics for the remaining quarter, especially on the provisions line?

And my second question is on the outlook for loan growth for this year, if you can share your expectations.

And what segments should be driving growth this year?

Alonso, I'll start with the second question.

Probably, we are facing loan growth close to inflation.

We are expecting about 30% inflation for loan growth.

It could be more close to 32%.

And it would be in the similar segments that we saw last year: in retail, mainly in credit cards and personal loans.

We launched personal loans adjusted by inflation.

That has more demand.

And then in the commercial side, we have to wait a little and see what happened with the rate.

And regarding the NPL, we had this [Molina Panella] with 30% provisioning.

And we have to see what happened with this specific company during the following months.

The rest of the portfolio, we are seeing some deterioration in the ratios also in the retail portfolio.

But we think that the first quarter probably will be the worst, mainly because the salary increase -- salary increases are starting to discuss and because the work -- high inflation also in these first months of the year.

But we will see what happens by the end of the year.

One thing that is important is that if we have to implement it IFRS 9 right now, we have the good level or the similar level of provisioning, so we will not need to make any adjustments.

(Operator Instructions) And our next questioner will be Santiago Petri with Templeton.

Could you please give us some color on the evolution of the net interest income?

Could you please highlight that?

What belongs to the private sector exposure?

What belongs to the public sector exposure?

And how do you think it's developing in 2019?

Santiago, we continue seeing high rates in this -- in the last day.

So we -- probably the net interest income will remain at a very good level, we think that -- and if the Central Bank continues to maintaining the high reserve requirement with the both, start from the -- coming from the public or the public bonds or Leliq, or the Central Bank instruments and the rest for the private portfolio.

But we continue seeing in this hard semester high rates.

And there looks to be no further questions.

So this will conclude our question-and-answer session.

At this time, I would like to turn the floor back over to Mrs.

Acuña for any closing remarks.

Okay.

Thanks again for joining us.

I'm sorry again for the delay.

And if you have any follow-up questions, please contact us in our offices.

The conference has now concluded.

Thank you for attending today's presentation, and you may now disconnect your lines.