Banco Macro SA (BMA) 2012 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 the Banco Macro 2Q '12 earnings conference call.

We would like to inform you that 2Q '12 press release is available for download at the Investor Relations website at Banco Macro www.macro.com.ar. Also this event is being recorded and all participants will be listen-only mode during the Company's presentation. 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)

It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Pablo Brito, member of the Executive Committee; Mr. Guillermo Goldberg, Commercial Deputy General Manager; Mr. Jorge Scarinci, Finance and IR Manager; and other members of the Bank's management team.

Now, I'll turn the call over to Jorge Scarinci, Finance and IR Manager. You may begin your conference.

Good morning, and welcome to Banco Macro second-quarter 2012 conference call. Any comments we will make today may include forward-looking statements which are subject to various conditions, and these are outlined in our 20-F which was filed to the SEC and is also available at our website.

The second-quarter 2012 press release was distributed yesterday and it is also available at our website.

Banco Macro is one of the leading private banks in Argentina, with strong presence in the interior of the country and a branch network of 427 branches. Even though we are a universal bank, we focus on low- to middle-income individuals and SMEs. Banco Macro is also the financial agent of our four provinces in Argentina which are Salta, Jujuy, Misiones, and Tucuman.

I will now briefly comment on the Bank's second-quarter 2012 financial results. Banco Macro's net income for the quarter was ARS332.1 million, or 29% higher than the ARS257.8 million earned one year ago.

The Bank's annualized second-quarter 2012 ROE and ROA of 25.9% and 3.1% respectively remain healthy and shows the Bank's earnings potential.

Nevertheless, Banco Macro accounted additional provisions of ARS75.3 million in the quarter. Had these provisions been excluded, second-quarter 2012 net income would have been AR407.4 million or 28.9% of ROE and 3.4% of ROA.

In the quarter, net financial income totaled ARS1 billion, or 48% higher than the ARS675.1 million registered one year ago. This performance can be traced to our 58% year-on-year increase in financial income and a 75% year-on-year increase in financial expenses.

Within the financial income, interest on loans rose 52% year on year due to our 47% average growth in the average loan portfolio and a 300 basis point increase in the average lending interest rates. In the second-quarter 2012, interest on loans represented 82% of total financial income, compared to the 80% in the same quarter of last year.

On the other hand, income from government and private securities decreased 23% year on year due to the lower bond prices. Meanwhile, within financial expenses, interest on deposits grew 92% year on year, due to a 35% increase in volume of deposits and a 330 basis point increase in the average deposit interest rates.

The former combined effect resulted in an increase of the Bank's net interest margin from 10.5% in the second quarter of 2011 to 11.6% in the second quarter of 2012. Had we excluded bond gains and warranty loans on the calculation, the Bank's net interest margin would have widened to a further 12.1% from last year's level of 10%.

The Bank's net fee income grew 34% year on year based on deposit accounts, and debit and credit card fees. Administrative expenses rose 25% year on year mainly due to an increase in personnel expenses and higher operating expenses.

The increase in personnel expenses can be traced to the 23% annual average salary increase agreed with the unions back in May 2011. The impact on second-quarter 2012 is lower than the mentioned increase since in the first quarter of 2012 our payment for future salary increases was accounted.

The accumulated efficiency ratio reached 50.9%, much better than the 56.9% level posted one year ago.

As of June 2012, Banco Macro's effective income tax rate was 43.1%, above the 36.6% posted in the second quarter of 2011. This increase was based on the additional provisions for loan losses made in the second quarter of 2012 which cannot be deducted from taxable income and therefore the accountable income was lower than the tax income.

In terms of loan growth, the Bank's financing to the private sector grew 6% quarter on quarter and 34% year on year, continuing to show some deceleration in the economy in the second quarter of 2012. Personal and credit card loans also grew during the quarter.

On the funding side, total deposits grew 3% quarter on quarter and 27% year on year. Public sector deposits grew 11% on a quarterly basis while in the private sector deposits and increasing peso deposits was offset by the decrease in foreign currency deposits.

As of June 2012, Banco Macro's transactional accounts represented approximately 45% of total deposits and, therefore, the Bank's average annualized cost of funds was 6.7%.

In terms of asset quality, Banco Macro's nonperforming to total financing ratio reached 1.58% from -- compared to the last year's level of 1.51%. On a quarterly basis, NPLs also remained stable. Banco Macro decided to account for additional provisions of ARS75.3 million to those required by the central bank and to complete the provisioning policies established internally. The coverage ratio reached 169.5%.

In terms of capitalization, Banco Macro accounted an excess of capital of ARS2.1 billion, which represented a capitalization ratio of 18.7%, even though in the second quarter of 2012 the operational requirement was incorporated. The Bank's aim is to make the best use of this excess capital.

The Bank's liquidity remained also healthy. Liquid assets to deposits ratio reached 40%. So Banco Macro accounted for another positive quarter, we continued showing a solid financial position, asset quality is under control and closely monitored.

We continue working to improve more our efficiency standards. We have one of the cleanest balance sheets in Argentina's banking sector. And we keep a well-optimized deposit base with one of the lowest cost of funds in Argentina's banking sector.

So, Operator, at this time, we would like to take the questions that participants might have. Thanks.

(Operator Instructions). Tito Labarta.

Thanks for the call. I just have a couple of questions. Just first, in terms of additional provisions you booked, asset quality remained pretty stable in the quarter, you're booking these additional provisions. So I just want to get a sense, is that concerned about some deterioration in asset quality going forward? Do you think you would be doing any more additional provisions and how do you see asset quality going forward given the slowdown you're seeing in Argentina?

And then just a second question in terms of loan growth, while it remained strong, it has come down from the peak levels you saw last year. So if you can maybe give some guidance on how you see loans growing for the rest of the year given the slowdown we are seeing? Thank you.

Tito, how are you? And your first question in terms of additional provisions, basically we take these to account for these provisions because of the slowdown that we were forecasting at the end of last year for 2012. And the idea is to be alert on the part of the economy that has been coming down. I would say that in July we have seen some stabilization in the economy in terms of the deterioration that we were seeing. So for the moment, this is tough to say if we want to run for additional provisions. In fact, if I have to guess, I would say no, but of course we have to track on the part of the economy.

We think that we have asset quality under control with very good [management] in terms of asset quality and standards and also with a coverage ratio that is almost 170%. So not pretty sure what will happen in the second half. If I have to guess right now, I would say that we are okay with these provisions as we have right now.

In terms of loan growth, we have been mentioning in the previous conference calls in the last quarter that loan growth in '12 was going to be much lower than the one that we saw in '11. (Inaudible) with the deterioration in the economy. So we believe that for 2012 for Banco Macro we are going to post around 20% nominal loan growth.

So we are seeing similar behaviors in the third and fourth quarter, similar compared to the second quarter.

Great, thanks a lot. I had just one follow-up question then on the provisions. So you don't expect additional provisions at this point. Should we assume that your current level of provisions would be kind of excluding the ASR75 million in provisions and then for the rest of the year would be roughly around those levels, excluding the addition of provisions?

Yes, yes, for your model I would assume that, yes.

Okay, great. Thank you.

Welcome.

Chris Delgado.

I just had two quick questions, one just relates to expenses. Kind of given the slowdown in your economy, do you see any kind of pressure on inflation side kind of slowing down, kind of bringing down your expense growth expectations, basically related to wage negotiations?

And then my second question just kind of relates to your net interest margins, just kind of where you see that going forward as well?

Hi Chris. In terms of expenses, as you know that the [annual churn] increase was already done in the past month of May. In that sense, we are not expecting any additional decrease until March or May of next year.

And in terms of the other operating costs, are we're looking to inflation rate, no. Basically even though we have seen a slowdown in the economy, we are not seeing a decrease in the inflation rates which according to the credit consultant is around 25%. So in those other operational costs, we are not seeing a decrease going forward compared to our estimates.

In terms of the net interest margin, I haven't seen [assets without] being mentioned before, stability in the net interest margin behavior. If you look at our press release, in the last page there we have a table there. You can see that in the last five quarters, the net interest margins have been basically ranging between 10.8% and 11.7% -- sorry, between 10.8% and 12.1%, almost 100 basis points of range there.

Going forward, I'm not seeing the range widening. I'm seeing the range being pretty stable. So if I could guess going forward, I would put this margin at least for the next two quarters in the range of mid 11%.

Okay, thanks.

Welcome.

Nicolas Chialva.

Given that the economic indicators are showing a sharp deceleration in the second Q and loan portfolio growth also decelerated in the second Q, (inaudible) you have expected a deterioration in asset quality probably in line with seen last quarters. But in peers, as you said, probably salient. So the question is, what has driven this outstanding performance of the asset quality?

Hi, Nicolas. When you look at the table in page number 10 at the press release, basically you have a combination of good performance in terms of the commercial portfolio. You can see that the NPLs of the commercial portfolio are pretty stable. That's a consequence of, I would say, two things. One, that companies are or have been demanding short-term working capital at least for the last 12 months and therefore they are renewing at some point this type of loans and therefore we are not seeing NPLs growing. But Banco Macro also works with in longer term loans for the Company with collateral which are more region (inaudible).

In terms of the consumer, if you see there is some increase in the NPLs in the quarter. Basically I would say that the open market segment shows some deterioration. But also we explained that Banco Macro has been positioning the consumer loans in basically the three [payer] segments which are private sector, public sector and also with the lease, which have been giving good results in terms of NPLs.

Last I would say that we could see some additional deterioration going forward because sometime you can't find some of kind of a last in terms of the NPLs performance. With another point which is also important that there were sellers increasing that took place at some point in the second quarter in Argentina, so that also help for the performance in NPLs.

Thank you very much for that Jorge. Then I've got a question regarding government intervention which has increased during the last 12 months. I know it's difficult to predict the future path of regulation, but the Central Bank has already issued a new regulation enforcing banks to finance investment and activity.

So my questions more referred to this new regulation. How is this Banco Macro relative to the new requirement or in other words, do you see any problems in complying with the new regulation? And have you estimated the cost of complying with these new regulation which would be the impact in term of ROE if you have estimated that?

Nicolas, you are mentioning the one that banks start to lend 5% of their private sector reportings?

Yes. Yes, sorry, I didn't mention, yes.

Basically in terms of Banco Macro, that represents approximately ASR990 million. Basically that is not affecting at all our liquidity standards. These loans have to be extended until the end of the year.

And in terms of profitability, of course we are not going to lose money. The calculation that we have note down here is because we have to allocate these loans with a maximum interest rate of 16%. So we have not done the calculation. What's been happening is we allocate these new loans at the average rate of the portfolio.

I would say now guessing and doing some calculations in here that we could be maybe guessing between 2 and 3 percentage points less than the average loan interest rates in those loans. In terms of the cost, there are no costs.

Okay. And do you see any problems in complying with this new regulation in other financial institutions? I mean what I want to talk about these questions is the future path for regulation and if the Central Bank will have to take a step back on trying to direct credit from the banking sector?

Sorry, I couldn't get the question, Nicolas. You were --

The question is, do you see any problems in any other financial institutions in complying with these new requirement of 5% or --?

This type of issues you should speak from other financial entities. Honestly, I don't know. Of course, this is relative to the size of every bank. The only problem that I'm seeing that this is a kind of (inaudible) the demand on this type of loans that even though they are like what appears to be cheap with a 15% interest rate, I would say that the demand for loans requires basically an investment plan being already calculated and studied by basically SMEs and honestly, what we see that most of the SMEs in Argentina have not have this kind of plans already established and calculated. So it is like, now they are running and trying to find, which type of project they can have in their own companies, in order to get this type of new loans. So I am seeing more (inaudible) from the demand than from the supply.

Great. That has been a great answer. Thank you very much, Jorge.

Welcome.

Federico Rey.

I have a question regarding the taxes during this quarter and what addition during the first quarter, you recorded a high effective income tax rate as a result of the fiscal treatment on the exit provisions. My question is, since you decide to use these reserves if you see a reversal in the income tax. What should be the impact on that? Thank you.

Hi Federico. Yes. This is a kind of the difference between the accountable income and the taxable income, and in terms of the nominal level of income tax, that's the same level. No matter if we are in excess provision or not, it's only that the difference between the accountable and the taxable income.

Going forward, we believe that the rate or the effective income tax rate is going to come down more to mid-30s. That is the statutory income tax rate, and at some point, this could be reserved if something happens in the sense that when some of you have some recoveries, this could be a benefit from an income tax point of view, or -- I'm just thinking of maybe if you sell -- for example, if you sell power portfolio, that could also solve this problem.

But going forward on the second half of the year, we are expecting the effective income tax rate to come down more to normal levels, I would say mid-30s.

Thank you.

Welcome.

[Jeffrey Tillman].

Thank you very much for hosting the call. I have two questions, the first being in your experience with this Company in the past three to five years, how would you save the mortgage? People taking mortgages has been either increasing or decreasing, both commercial and residential.

In terms of the mortgage markets, this is something that we have been commenting for the last three years at least. In Argentina, there is a (inaudible) problem, that because of the increase in the real estate prices, after the 2001 crisis, because real estate has been also seen (inaudible) as a way of saving money. So prices stay roughly in dollars, and when you look at the salaries of the people in dollars also, they haven't covered the 2001 levels in 2010.

So in the last three years, I would say that in terms of the salaries measured in dollars, with short-term recovery compared to 2001 levels.

So there is a big, big gap between the real estate prices in dollars and the salaries of the people in dollars, and therefore, you have few people can access a mortgage, few people can pay the monthly term of a mortgage. So my personal view on this, I am not seeing this problem being solved in the short run at least.

Okay, I understand. And somebody else might have asked this, I'm not sure but as far as your dividend payment, I know last year it was in May. When do you expect for it to be this year?

Well, I don't know. You have -- you also know that there is -- there was a new regulation implemented by the Central Bank in February this year, where the operational risk was incorporated through the required capital, plus the increase in the margin over where the banks have to allocate the capital, that jumped from 30% to 75%. So it was a much tougher regulations issued by the Central Bank this year.

So you know that in Banco Marco we have the shareholders meeting, that are done once a year. So the next one is going to take place approximately in April of 2013, and according to the capital position at that time, we are going to see if we are going to be able to pay cash dividends or not.

Okay, but as far as 2012, there will be no dividend?

We are not expecting shareholders meetings -- to meet in the second half, and also if you look at the capital trend that we are also putting up in our press release, for the moment we are slightly below the 75% margin required by the Central Bank in order to be in condition to pay the cash dividend. So according to our numbers, as of June 2012, we cannot pay the cash dividend.

Okay, I understand. Thank you very much.

Welcome.

And there are no questions at this time. This concludes the question-and-answer session. I will now turn the call over to Mr. Jorge Scarinci for final consideration.

Okay. Thank you everyone for your interest in Banco Macro. Of course we appreciate your time and look forward to speaking with you very soon. Have a good day. Thanks.

This concludes today's conference call. You may now disconnect.