Banco Macro SA (BMA) 2016 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 Banco Macro's First Quarter 2016 Earnings Conference Call. We would like to inform you that the first quarter 2016 release is available to download at the Investor Relations website of Banco Macro, www.ri-macro.com.ar.

Also, this event is being recorded and all participants will be in a 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, Financial Deputy General Manager; Mr. Jorge Scarinci, Finance and IR Manager; and Ines Lanusse, IR Officer and other members of the Bank's management team.

Now, I will turn the conference over to Mrs. Ines Lanusse, IR Officer. You may begin your conference.

Good morning, and welcome to Banco Macro's first quarter 2016 conference call. Any comment we may 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 available at our website.

Our first quarter 2016 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 a strong presence in the interior of the country and a branch network of 439 branches. Even though we are a universal bank, we focus on low to middle income individuals and SMEs. Banco Macro is a financial agent of four provinces in Argentina; Salta, Jujuy, Misiones and Tucuman.

I will now briefly comment on the Bank's first quarter 2016 financial results. Banco Macro's net income for the quarter was ARS1.4 billion or 26% higher than the ARS1.1 billion earned one year ago based on higher net financial income and higher fees. The Bank's accumulated annualized first quarter 2016 [ROE and ROA] of 33.3% and 5.1% respectively remains healthy and shows the Bank's earnings potential.

In the quarter, net financial income totaled ARS3.3 billion or 21% higher than the ARS2.7 billion registered one year ago. This performance can be traced to a 41% year-over-year increase in financial income and 68% year-over-year increase in financial expenses. Within financial income, interest on loans rose 49% year-over-year due to a 200 basis points increase in the average private sector lending interest rates, and to a 38% growth in the average private loan portfolio.

In first quarter 2016, interest on loans represented 77% of total financial income. In addition, net income from government and private securities decreased 8% year-over-year due to the decrease in peso denominated securities market prices. Meanwhile, within financial expenses, interest on deposits grew 76% year-over-year due to a 56% increase in the average volume of interest bearing deposits or time deposits and 250 basis point increase in the average time deposit interest rate.

Excluding FX gain, the former combined effects resulted in a decrease of the Bank's net interest margin from 19.6% as of the fourth quarter of 2015 to 16.7% as of the first quarter of 2016. Had we also excluded income from government and private securities and warranty loans, including some adjustments on the calculation, the Bank's net interest margin would have been relatively lower from 15.4% from last year's levels to 15.2% as of the first quarter of 2016.

The Bank's net fee income grew 20% year-over-year based on fee charged on deposit accounts and debit and credit card fees. Administrative expenses rose 34% year-over-year, mainly due to an increase in personnel expenses, primarily salary increases and (technical difficulty) and higher other operating expenses. The accumulated efficiency ratio reached 47.9% in the first quarter of 2016. In the first quarter of 2016, Banco Macro effective income tax rate was 35.1% compared to 37.6% registered in the first quarter of 2015.

In terms of loan growth, the Bank's financing to the private sector slightly decreased ARS218.8 million quarter-over-quarter. On a yearly basis, the Bank's financing to the private sector increased 30% year-over-year among which commercial loans for productive investments have been included. Credit cards and personal loans also grew year-over-year.

On the funding side, total deposits grew 9% quarter-over-quarter and 43% year-over-year. Private sector deposits grew 11% on a quarterly basis, while public sector deposit decreased 4%. As of March 2016, Banco Macro's transactional accounts represent approximately 42% of total deposits and therefore the Bank's consolidated average cost of fund was 12%.

In terms of asset quality, Banco Macro's non-performing to total financing ratio reached 1.53% improving from last year's levels of 1.92%. The coverage ratio reached 151.47%. In terms of capitalization, Banco Macro accounted an excess of capital of ARS8.7 billion, which represented a capitalization ratio of 23.5%. The Bank's aim is to make the best use of this excess capital. The Bank's liquidity remains appropriate. Liquid assets to total deposit ratio reached 44.4%.

Banco Marco accounted for another positive quarter. We continue 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 Argentine banking sector and we keep a well [optimized] deposit base.

At this time, we would like to take the questions you may have.

(Operator Instructions) Nicolas Riva, Citi.

Yes, thanks Ines for taking my questions. My first question is on efficiency. Your operating expenses grew 34% year-on-year, while your fees grew 20% year-on-year and net interest income grew 21% year-on-year. So we did see this quarter a deterioration in efficiency. What is your outlook for OpEx growth this year and also for the cost to income ratio? So that's my first question.

And my second question is on the net interest margin. If inflation decelerates in the second half of this year or in 2017 and interest rates come down, what would be the impact on your net interest margin? Or what is that the sensitivity in your NIM to a decline of, let's say a 100 basis points in interest rates? Thank you.

Hi Nicolas, this is Jorge Scarinci. On your first question, yes, the numbers that you mentioned are true in the quarter even though that we continue to have a 47.9% of efficiency ratio, one of the best in the Argentine banking industry. Going forward, we expect the net fee income to react vis-a-vis on the loan growth that we're expecting for the second half of the year. And also, we're expecting the net interest income also to have a better performance than in the first quarter. As you know, we've had seasonally lowest quarter of the [first] quarters.

In terms of summing that you could put in your models going forward is the lower touch on the or the impact on the SEDESA that was announced couple of weeks ago that will have an impact, in our case, of around ARS35 million a month of lower impact in interest expenses. So that's a positive news going forward on the net interest income. And according to the net fee income, we're expecting in 2016 to have an increase between mid-to-high 20%'s compared to 2015. Therefore, we're expecting to finish 2016 with an efficiency ratio in the area of the mid 40%s.

On your second question regarding the net interest margin, basically we expect to maintain our net interest margin relatively stable in the area of maybe 16% or 15.75%. That is the net interest margin without considering any FX gains or bond gains. That is a pure intermediation margin. So we expect that to remain pretty stable, and we are not seeing an impact, at least on the negative side or a [decrease] of 100 basis points on the domestic interest rates.

Thanks, Jorge.

Carlos Gomes, HSBC New York.

Hi, thank you for taking the questions. I wanted to know, first if you could clarify why fee income increased relatively less than the other lines to only 20% year-on-year, if there was something specific about that? And also, if you can give us your outlook for, as you mentioned, for loan growth for the end of the year, and also for the next one or two years. I mean now the things have moved on, we have had some recognitions in economic policy, how does it look? what do you expect to -- ?

Hi, Carlos. How are you? Basically, I will come first on your last part of the question. Loan growth for this year, we're expecting to be let's say, slightly above 30%. We're slightly fine-tuning our estimates because the high domestic interest rates are remaining slightly more than what we have previously forecasted. So between 30% and 32%, our loan growth is expected to be in 2016 and in mid-30% for 2017 since we are expecting a recovery of 3% or 3.5% in the real GDP for next year.

Basically, in terms of the first part of your question, according to that net fee income growth, basically the first quarter is not the best for fee generation and when you see the composition, you might see also that credit related fees are not performing really good, basically that is in line with what we have shown in our loan book that was almost flat quarter-over-quarter. But therefore, we are expecting that to recover in the second, third and fourth quarter, finishing in mid-to-high-20's the net interest margin performance.

If I can follow-up, do you see any effect from the restrictions to fee increases that were implemented under the previous administration and do you expect that to be removed in the future?

Yes. At some point yes. And as you might know, since September Bank's has now limits in order to increase fees.

Thank you.

Next September. September 2016.

So since September, you will be free to set your fees?

Yes.

Okay, thank you.

Federico Rey, Raymond James.

Yes. Hi, good morning. I have a question regarding net interest margin. I heard that you said that you're expecting stable margins for the rest of the year. I would like to know if you have calculated a list from a theoretical point of view, what should be the benefit coming from the removal of the, I mean the caps on lending rates and the floor on deposit rates which were removed by the end of last year. Thank you.

Hi, Federico. The net impact on that was not that much. Basically we increase between 3 percentage points and 4 percentage points the consumer lending interest rates, and at some point we were able to reduce by 50 basis point the deposit rates on retail deposits. I would say that the impact that we saw in the first quarter of 2016 according to that issue was between 30 basis points to 40 basis points basically, no more than that.

Okay, thank you very much.

Also going on with your question. You know that those loans that are regulated by the Central Bank, the productive line of loans continues even though the interest rate is slightly higher, but those loans continue. So at that point, the average rates on those loans are of course much lower than the rate that we can charge on basically consumer loans or even though to semi-SMEs that are not involved those credit lines.

Okay. Are you expecting another increase in the rate for those loans as took place at the beginning of the year?

No so far. No news on that front for the moment.

Okay, thank you.

Catalina Araya, JPMorgan.

Hi, yes, good morning. Thanks for taking my question. First I would just want to know, if we can get an update on the potential acquisition of Citi more to know if Citi has provided details on what's exactly for sale and if you guys would think this would be complimentary to your operations.

And then my second question would be regarding the Linea Productiva, have you estimated what would be the potential if that regulation goes away and that scenario that this deposits would be used to lend at a higher rates? Thank you.

Hi, Catalina. Your first question according to Citi, honestly we don't have a major news. We're expecting some data to be release in the next days. But basically, we are going to have a look at them. Of course it looks -- first glance looks attractive, the transaction, because the positioning mainly of the branches and the clients are compliment for Banco Macro's strategy, but apart from that, we do not have more news or more comments on that.

On the second question, the Linea Productiva was that I was commenting to Federico before, basically we have no news according to what will happen in the future. Honestly the interest rate was moved from 19% to 22%, and we bank have to keep a percentage of 7.5% of private sector deposits. But for the moment, we're not having any news or any guidance from the Central Bank if those parameters are going to be changed. So for the moment, we continue working with those numbers.

Okay. Just a follow-up, the Linea Productiva, that regulation goes until December, right and hasn't been rollover for next year or what's the update there?

Yes, basically it's every six months. It could be or lower the last day of June for example, but it is every six months.

Okay, thank you.

Domingos Falavina, J.P. Morgan.

Hi. Good morning, all. My question is adding actually a little bit to Carlos question. On the fee side, you mentioned the fees on originating loans, new loans they came down, but what surprised me a little bit was actually the fee expense side, which is what kept you from delivering even better results on the fees, since they grew about 70%. Could you explain a little bit more what are those fees exactly?

Well basically there was some fees related to some campaigns on the effort that we are trying to do on credit cards in order to catch up a little bit with our competitors, since we are bank number four in terms of market share, in terms of credit cards. And we want to have more balanced consumer lending book, since we are number one in terms of personal lending. So those efforts were accounted in the first quarter. I mean, marketing campaigns and all those expenses were accounted in the first quarter. So that was basically the increase in the first quarter on the fee expense side that you were saying.

So basically it's not a structural cost that we could see fees is growing more in the upcoming quarters.

That's what we are forecasting, yes.

Understood. And a second question if I may, we noticed that the salary adjustments with the negotiations of the union on the banks just came out, how does the low 30% fall within your budget and your forecast for expenses growth for the year?

No. Well, the agreement with the unions was reached last Friday and was 33%. So basically, since 60% or 65% of our expenses are salaries I would say that between 30% and 32% is the increase that we are seeing for expenses for this year.

Understood. Thank you very much. Congratulations on the quarter.

Frederic de Mariz, UBS.

Thank you, good morning, everyone. Thank you, Ines, Jorge, for the conference call. A couple of questions on my side. I was curious to see if you could give some more color on the asset quality, especially considering the spike in inflation for April and the also the slow economy that we're expecting for this year. What kind of segments in the economy would be the most concerning for you and are you seeing any increase in delinquencies either in consumer or some corporates? That's the first question.

And then the second question is more generic. We're following obviously the agreement with the holdouts and you have very low exposure to dollar assets. And I was wondering whether you were expecting to increase the lending in dollars on the assets in dollars in the next three quarters or how are you thinking about this agreement with the holdouts in general terms. Thank you.

Hi, how are you? On your first question, in terms of NPLs, well we're showing a good performance not only Banco Macro but I think the whole system. But in the case specifically of Banco Macro on the consumer side, you have to take into account that 90% of our personal loans are tied payrolls. We have three different type of payrolls; the private sector, the provincial public sectors and the retirees, so that is a very important (Inaudible) that Banco Macro has compared to our peers. That is one of the main reason we have such a low level of NPLs on the consumer side.

On the commercial side, going forward we could see some increase or some deterioration in that front. As you mentioned, since we are expecting between 1% and 2% negative GDP performance for this year, basically we could see something like that. So going forward, we could see the ratio of 1.5% of NPLs going up to maybe 1.75% or 2%, but no more than that. Basically, we're not expecting a high deterioration on this ratio. And also considering that next year we are seeing a recovery of the economy, we think that asset quality, in our case, is under control.

On your second question, basically in terms of dollar assets, we look more at the performance of the nominal FX well to have a higher exposure or a low exposure. In the first quarter, what we decided is at some point to reduce our dollar exposure in order to allocate those pesos at a high level of interest rate in pesos. And going forward we are going to do the same, like monitoring the performance of the nominal FX, the performance of the domestic [visa] rate in pesos and depending on that we are going to have a high exposure in dollars or a lower exposure in dollars.

That's very clear. Thank you, Jorge.

(Operator Instructions) Nicolas Riva, Citi.

Yeah. Thanks, Jorge. I have a follow-up. Some newspapers in Argentina are mentioning this morning that ANSES could be looking to sell or reduce their equity stakes in several companies, we know that the ANSES owns about 20% of your shares. In terms of how this would work, do you think they would be selling that in the market or maybe there would be a negotiation between the ANSES and your controlling shareholders? Thank you.

Hi, Nicolas. The ANSES has 31% of the shares of Banco Macro, and as you may know that was inheritance that they received after the nationalization of the private pension funds that happen in 2008. The former administration decided to keep those shares as kind of strategic assets and this new administration maybe have a different approach on how they manage their portfolio of the ANSES. So, according to what appears in the newspaper today honestly, I have no further comments to what's that's also only something that appears in newspapers.

Going forward, we could see some changes in how the ANSES manage their portfolio. But how they will do that? Honestly, we do not know. If I had to guess and this is my personal opinion, I'm not seeing the ANSES selling in the secondary market. So they could do that in a private placement maybe in the US or in the foreign markets. But this is my personal view and we don't have an official information on that.

Great. Thanks Jorge.

Santiago Ruiz, TPCG.

Hi, Jorge. My question is regarding loan growth, we saw loan growth growing below deposits growth. I was wondering if this is a tendency that we continue in the future. And also regarding loan growth, do you see a demand for loan growth in the second half of the year coming more from companies or from individuals?

Hi, Santiago. Now of course we expect some recovery in loan growth. That is going to go hand in hand with reduction in the domestic rates that we're having at some point in this second quarter and of course, that will be related to the pace of the inflation.

Going forward, what we are expecting at some point is, demand coming from both consumer and commercial, but at some point, we're expecting some higher demand coming from the commercial area. Since this is a big opportunity after many years of having a more clear horizon on what we're having on in terms of inflation and fiscal deficits and all those macroeconomic figures, that this government should be announcing and publishing and giving forecast something that the former administration didn't do.

So maybe companies will have a more clear picture of what will happen going forward, and therefore the loan demand will come more from maybe commercial areas than consumers. I'm not saying that consumption is not going to continue growing, but the growth rate that we might see in consumption could be slightly lower than what we saw in the previous years.

Perfect, thanks.

Santiago Petri, Franklin Templeton.

Hi, good afternoon. Thanks for the call. One question is related to provision expenses. What would be your level of provisions for this year? I mean, you reduced slightly the [loan loss] provisions year-over-year in the first quarter, so that will be the first question.

And then second question is more medium term. With a normalization of interest rates towards more reasonable levels with a control of inflation if the (inaudible). Do you expect net interest margin to go up or down or stay the same as now?

Hi, Santiago, your first question, according provisioning, we're expecting to provision in the area of 1% of total loans in the whole calendar 2016, that's the idea. But of course depending on how delinquency rates perform, we could be fine tuning that target. But for the moment, we're having 1% of average loans to be the level of provisioning for this year.

And your second question, it depends which is your long-term view. If your long-term view is five or seven years with nominal rates going down, inflation been a single digit and Argentina having or recovering the twin (technical difficulty) both fiscal and commercial, so we are talking about the different Argentina, and of course the level of bancarization should be two or three times the level that we have right now, my answer would say that net interest margins would be down in that scenario. But of course since banks will be intermediating or at least Banco Macro will be intermediating a much, much larger amounts of money, the result on that net interest income line will be of course very positive, compensating the decrease in the net interest margin.

Okay. Now, I mean we agree with the future for the development of the financial industry in Argentina, but essentially I was wondering what's your view on net interest margins with a normalization scenario in Argentina? So essentially, it should be -- and do you have an estimate of how many basis points it should come down -- inflation in the 10% annual rate?

Honestly, Santiago, no because that could be a forecast of five to seven years. We have an approximately idea that it could be in the area of 10%, but could be 9%, could be 11%, depending on many issues, but of course will be not the 16% that we are performing right now, for sure. But an approximate calculation is around 10%.

Okay, excellent. Thanks a lot.

[Ignacio Torero] LV Asset management.

Hi. The Central Bank, in the announcement, allowed that mortgages and deposits to be indexed at UVI. I wanted to know what your thoughts were, and if you saw any demand for mortgages at this moment?

Hi, Ignacio. Yes, we have on our line of products these mortgages tied to UVIs. Honestly, we have some of course phone calls, some people approaching to the branches asking on the [current rating] of these products. However, we think that the monthly inflation is slightly higher than what consumers or our customers are expecting to come and demand more on these products. So for the moment, we are not seeing demand. In the next months, depending on how inflation performs and how much inflation goes down, we could see some more demand on mortgages tied to UVIs. But for the moment, demand is almost zero here.

Makes sense. Okay, thank you very much.

Carlos Gomes, HSBC New York.

Yes, thank you again. You were going to have some changes in the Board of Directors of the Bank, should that have any relevance for the day-to-day management? Anything that we investors should know about?

Hi, Carlos, again the shareholders' meeting is taking place tomorrow. Honestly, there are changes in the Boards. I think that the Directors that are leaving and also the Directors that are being proposed to be included, I think that all of them are excellent professionals. I think that going forward, we could see and this is my personal view, the positive impact in the changes, I'm not seeing why the changes should be negative. So I'm positive on the changes, and I think that would be positive for the whole Bank and the whole organization.

But again, all of these changes are at the Board level, as far as I have seen, there is no change at the management level, is that correct?

Yes, that's correct.

Thank you.

There are no further questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Ines Lanusse for any final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking you again. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.