Banco Macro SA (BMA) 2016 Q3 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 Third Quarter 2016 Earnings Conference Call. We would like to inform you that the 3Q 2016 press 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 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 Board of Directors; Mr. Gustavo Manriquez, General Manager; Mr. Jorge Scarinci, Finance and IR Manager; Ines Lanusse, Head of IR and other members of the bank's management team.

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

Good morning and welcome to Banco Macro's third quarter 2016 conference call. Any comments 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. Third 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 444 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 third quarter 2016 financial results. Banco Macro's net income for the quarter was ARS1.6 billion or 48% higher than the ARS1.1 billion earned one year ago, based on higher net financial income and higher fees. The bank's accumulated annualized third quarter 2016 ROE and ROA of 35.2% and 5.4%, respectively, remained healthy and shows the bank's earning potential.

In the quarter, net financial income totaled [ARS4.0 billion] or 45% higher than the ARS2.7 billion registered one year ago. This performance can be traced to a 48% year-over-year increase in financial income and 51% year-over-year increase in financial expenses. Within financial income, interest on loans rose 43% year-over-year due to 150 basis points increase in the average private sector lending interest rate and to a 36% growth in the average private loan portfolio.

In third quarter 2016, interest on loans represented 75% of total financial income. In addition, net income from government and private securities increased 73% year-over-year. Meanwhile, within financial expenses, interest on deposits grew 55% year-over-year due to a 55% increase in the average volume of interest-bearing deposits or time deposits and to a 10 basis point increase in the average time deposit interest rate.

Excluding FX gains, the former combined effect resulted in an increase of the Bank's net interest margin from 17.3% as of the third quarter 2015 to 18.5% as of the third quarter 2016. As we also excluded income from government and private securities and guaranteed loans including CER adjustments on the calculation, the Bank's net interest margin would have been 15.2% as of the third quarter of 2016 from 15.8% as of the third quarter of 2015. The Bank's net fee income grew 26% year-over-year based on fee charged on deposit accounts, and debit and credit card fees.

Administrative expenses rose 37% year-over-year mainly due to an increase in personnel expenses primarily salary increases and other concepts and higher other operating expenses. The accumulated efficiency ratio reached 47% in third quarter 2016. In the third quarter 2016, Banco Macro's effective income tax rate was 35.6% compared to 38.1% registered in third quarter 2015.

In terms of loan growth, the Bank's financing to the private sector increased 8% quarter-over-quarter. On a yearly basis, the Bank's financing to the private sector increased 35% 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 12% quarter-over-quarter and 47% year-over-year. Private sector deposits grew 9% on a quarterly basis while public sector deposits also increased 38%.

As of September 2016, Banco Macro's transactional accounts represented approximately 42% of total deposits and therefore the Bank's consolidated average cost of funds was 11.8%.

In terms of asset quality, Banco Macro's non-performing to total financing ratio reached 1.46%, improving from last year's levels of 1.77%. The coverage ratio reached 155.15%.

In terms of capitalization, Banco Macro accounted an excess capital of ARS10.5 billion, which represented a regulatory capital ratio under Basel III of 17.3%. 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 44.7%. 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 efficiency standards. We have one of the cleanest balance sheets in Argentine's 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. So I have two questions. The first one on interchange fees, I understand that the Senate has already approved a reduction in the interchange fees that the banks make; in credit card transactions from 3% to 1.5% and in debt from 1.5% to 0%. So my question is, if this is approved in the lower house and becomes low, what would be the narrative impact in your bottom-line from losing these revenues; and also, what you think is the most likely outcome from this?

And then my second question on loan growth, I noticed, if I look at this on a quarter-on-quarter basis, you have much stronger growth in company lending 9% quarter-on-quarter versus consumer lending 5%. And even if I go into the specific products, for example, in discounted documents, overdrafts, you had very strong growth quarter-on-quarter, but in credit card it's only 2% quarter-on-quarter, personal lending 6%. So if you can, maybe explain the dynamics that you're seeing in terms of demand from corporates and individuals and also what's the outlook for next year? Thanks.

Okay. In relation, first, let's go to your second question, in terms of loan growth what we are seeing is a slightly more demand coming from the commercial area rather than the consumer one, but that is in relative terms. So that's why you see in terms of the percentages, a higher percentage increase in basically commercial lines rather than consumer. However, since our book is 60% consumer and 40% commercial, in absolute terms, the number is maybe sometimes even larger on the consumer than in the commercial. But the trend is that, as we have been stating is that, in the last years companies have been only demanding for working capital, and I think that little by little they are starting to demand a bit more for investment, not very long-term, but something six months, nine months. And that is the same trend that we are looking for 2017, may be stronger demand from companies rather than consumer, this is again in relative terms.

So for next year, we are forecasting loan growth in the area of 30% nominal when you compare that to the expectation for inflation with us is expected to be between 20% and 22%, you are having a good positive real rate of loan growth for next year. And this year, we expect to finish with a nominal level of plus 35% on our loan book.

In relation to your first question, it's still not approved the reduction on those fees [as it being introduced at the] Congress. Remember that here we -- the government is trying to implement the [older issuer charge, this means is 18] installments for product that have a local manufacturing, and of course, that is what the banks are arguing in a sense that to continue extending the number of installments for those type of products from the (inaudible) that means from 12 to 18 installments. Banks are pressuring not to have this low project approved by the Congress. So for the moment, there is nothing new on this project on credit card fees. So it is in a standby position. We continue charging the same fees that we are charging.

Okay. Thanks, Jorge. But in the case that this passes into law, and the interchange on credit card goes down to 1.5% and on debit to zero, what would be in that case the negative impact for your bottom line?

Honestly, it's not very easy to answer that question in giving you an exact number, because that we have also an impact in the promotions that we will be doing on the credit card, that will be an -- will have an impact in volume consumption also. So, it is very tough to say, and to give you an exact number, but we are going to make some modeling on that and maybe at some point disclosure potential impact on Banco Macro. Of course, I would like to mention and highlight here that if the loan is approved, the impact on Banco Macro is going to be relatively or much lower, let's say, than in the other banks, since in terms of credit cards, we are bank number four and we have some other competitors. We have a much higher number of credit cards and the impact on them is going to be much larger than in Banco Macro.

Domingos Falavina, J.P. Morgan.

Yes. Hi. Thank you for taking my question, Jorge, Ines and team. My question relates a little bit with the ROE outlook. In this base case scenario where you have loan growth on the 30%, so basically on real terms, real growth with inflation at 2022, what kind of ROE do you believe the bank can deliver and what's the outlook that you bake in when you look at the LEBAC for your assumptions? And then I have a second question.

Hi, Domingos. Well, I think that you are the expert here on forecasting, but according to that scenario, I think that we could be delivering ROEs in the area of mid-30% for next year. We are forecasting LEBACS to continue be in a way of allocating excess liquidity even though that remember that for next year, we are forecasting that for the third year -- after three years, loans are going to grow faster than deposits. So at some point the excess liquidity is going to shrink a little bit.

In terms of interest rate for the LEBACS, we are forecasting next year on average LEBACS rate, I mean, the 35 days to be in the area of between 19% and 20% according to the estimate that we have. That's on average, okay?

Understood. And my second question is regarding more M&A. I mean, Ines just mentioned your comfortable capital position of 17.3%, there was a recent due in there, I guess, myself and some clients, some investors expected Macro to have a bit more proactive or more aggressive decision on consolidating the market. So, I just wanted to understand what happened and if you see any other opportunities that could be coming up in the Argentine market for further consolidation?

Now, that is pretty clear that we are buyers. We want to be or we want to increase our market share in a market that we are seeing also expanding. But, that is not means that we are going to buy anything at any price. Of course, we are going to have a very deep analysis on the potential acquisition that we might be doing. We were involved in the Citi transaction, at some point, we decided to step down because there were some issues there that were not in the line of our policies, so we stepped down. That means that Banco Macro want to grow to acquire another bank, but that means that we are going to go without any analysis and paying any price for an acquisition. We want to be cautious. Remember that you will not find in Argentina's banking sector a bank as Banco Macro that we have acquired more than 11 banks in 20 years and all of them are already merged. So we have the expertise there. We have the excess capital. So, we are buyers, we know that a bank wanted to leave the Argentine banking sector, the first door to knock is Banco Macro. So I think that is the answer on your question.

Yes. But, I'm sorry. Was it more of a pricing issue or was it more like a geographical positioning or a product that didn't really match what you had in mind?

Going forward, it is pretty clear that we want to step further in what is the Buenos Aires area. Also, we will be looking at the complementation of our businesses, hence we are trying to maybe improve or increase the penetration of the medium to high income people that we have been doing in the interiors through a selected brand and we are trying to install that in Buenos Aires area, so that's another issue. Of course, the price is also another condition to be considered. I think that those are the main characteristic on acquired bank that we were looking at.

Frederic de Mariz, UBS.

Thank you. Good morning, Jorge, Ines and team. Thank you for the opportunity. I have a couple of follow-ups actually on the previous questions. The first one on loan growth, I think you explained very well that the driver was mostly corporates, and the consumer was a bit weaker. I'm just curious to know and get a bit more granularity from you. Was there any big ticket items in the quarter, any big corporate that drove the growth up or is it pretty spread out.

And also, if you could, give some color on the sectors where you are seeing more activities. So just to get a bit more insights into what sectors are doing well, and which ones are a bit slower on the corporate side. And then my second question goes with this, you started mentioning that deposits have been growing well, and maybe loan growth will outpace deposit growth for next year. And I wanted to hear from you what you're seeing in terms of deposit trends by currency, but also by type of deposits, if you can provide any insights here. Thank you.

In terms of loan growth, we are seeing basically that the economy is slightly trying to pick up. Remember that there was a recession here that in the second and third quarter reached lowest part as a consequence of the increase in the interest rate basically in the first quarter of the year. So, now seemingly, we are seeing some recoveries in different sectors. The energy sector are part of these, one of the most dynamic ones, trying to invest going forward, and trying to demand some long to more medium terms. Another sector that we think that might be picking up is infrastructure and also construction for next year. Basically, we believe that those sectors are going to start investing and being the leaders.

Also the agribusiness sector is going to be pretty active next year. So those are the main sectors that we are seeing pretty active. In terms of , for example, the automobile industry that is more tied to the behavior and the recovery in the Brazilian market. So for the moment, we are not seeing many changes there. So that is a picture or the movie that we are seeing on the loan growth going forward.

In terms of deposits, basically what we are seeing, the deposits are going to grow in the area between 23% to 25% nominal, next year as of today, we have 87% of our deposits being in pesos, 13% in dollars, that mix is going to be relatively maintained. It could be 80%-20%, as a consequence of the (inaudible) that we are going on here in Argentina. But, no more than or no further than that, basically in terms of the increase or the percentage increases of each sector is going to be in the area between 23% to 25% mostly in pesos.

That's very helpful. And if I may follow-up, do you have any sense on funding costs for next year? How would you see it considering that the mix might be changing a bit?

No, funding cost is going to, in our view goes down. That is going to go hand-in-hand with inflation and with other nominal rates. So, at some point we are going to see the average funding cost of Banco Macro approaching or maybe going below 10% at the end of next year if the inflation consolidate in the area of 20% and the Basel rate, of course, going to be below 20%. So in terms of the average, we should be going slightly below 10% by the end of next year.

That's very helpful. Thank you very much.

Welcome.

Carlos Macedo, Goldman Sachs.

Thank you. Good morning, gentlemen. A couple of questions, actually follow-ups from the prior questions. Jorge, I heard you mention that you expect deposit growth of between [23%, 25%] loan growth around 30%, more growth, at least, it seems first on the corporate side as that's happened this quarter, and rates coming down. How should we think about margins going into next year? I mean, it's a strong acceleration in growth. Do we expect margins to decline because of the change in mix? Do we expect them to improve, because funding costs are coming down now and you're tapping into what is a low-margin product which is our securities as you start working off that excess liquidity. What should we think about margins going forward?

Second question, same thing in NPLs, strong growth, with the growth the denominator will accelerate, is there room for the NPL ratio to decline further as you'd accelerate the denominator in the NPL calculation? Thank you.

Hi, Carlos. In terms of margins, we are seeing on the liability side, as I mentioned before, the average cost of funds going down. On the asset side, there is a mix of speeds in the reduction rates. We are seeing loan rates reducing but not as much maybe as lending rates basically because the mix that we have in our loan book, that we have much more consumer and we are not seeing consumer loan rates growing as much down as maybe deposit rates. So at some point that is going to maintain our margins relatively stable for next year. We are forecasting the net interest margin, on average, for 2017, let's say, between the same level of 2016 and 50 basis points less. So no major changes for next year in terms of margin that is what we are forecasting for the moment.

In terms of NPLs, I think that we are having an excellent level in terms of NPLs, not only Banco Macro but also the Argentine banking sector, is a consequence of three or four different factors that I think that you know them. Inflation, the credit bureau that is working really good here in Argentina. So going forward, I think that when the demand and loan growth starting to be much more positive in real terms, I think that in the medium long run we are going to see NPLs more in the area of between 2.5%, 3%, basically that is what we are seeing some deterioration going forward, not next year, but in the medium-term when we are having, of course, a much larger banking sector. Remember, as of today, we have only 12% of loan to GDP. So if we are forecasting 25% or 30% of loan to GDP, in that scenario we will be seeing NPLs in the area of maybe 3% and for that scenario we need to wait at least five more years.

Okay. But, just to be clear, I think, the denominator accelerates before the numerator, right, as usual?

Yes.

Alejandra Aranda, Itau BBA

Hi, good morning. I have a question and then a follow-up. In terms of fees, I was wondering if you manage to increase them in September once they were liberalized. And if you could, give us a little bit more color on what can we expect going forward in the next couple of months?

And then a follow-up in terms of deposits. I was wondering if you could explain a little bit more the effect of the public sector growth. We've seen a big uptick on this quarter, I was wondering how should we think about this going forward?

Hi, Alejandra. Yes, in terms of fees, we increased fees in September, so basically the impact on the third quarter was meaningless. We are expecting a wider impact in the fourth quarter. And so that's why the increase on a quarterly basis is not that much. Even though, when you look the increase in the net fee income,-- in the fee income, the fee income is 31% in real terms. But we are expecting the full impact on the increase that we've done in September to have that in the fourth quarter.

In terms of deposits on the public sector or public sector deposits, that's a consequence of basically two factors. One, we saw some of these provinces issuing bonds abroad and of course that liquidity is managed by Banco Macro. Second, there was a large amount of money transferred from the national government to the provinces as a consequence of the new agreement between the, what is called the, [Coparticipacion de Impuestos, Coparticipacion]. So that's why what we are seeing on a provincial deposit level is much larger funds. I think that during the fourth quarter we could see this growth maybe cooling down a little bit, because you know that in December they have to pay the half of the [2013] salary, so at some point that is going to cool down a little bit this increase, and of course, at some point these provinces will have to use that those funds that they got from issuing money abroad to invest at some point, doing some investment in those provinces. So going forward, I think that even though we are seeing growth rates, we are seeing slightly lower growth rates than the level that we see in the third quarter.

Jorge Mauro, SPX Capital.

Yes. Hello. Thanks for taking my questions. This is regarding the linear financiamento that the government subsidized. I wanted to understand, your level at the end of the third quarter was ARS3.7 billion, and the target is to reach 18% of private deposits. So just to clarify, I mean 18%, I'm getting to something close to ARS15.7 billion. So you need to deploy additional ARS12 billion into this line, is this correct?

No. I mean, the calculation for the whole has to be done through the -- over the private sector deposits. And that has to be done until June of next year. As of today --

I mean, just if you take, sorry, private sector deposit was ARS87 billion at the end of the third quarter, is that right?

As of today, we have almost ARS8 billion.

That's the total line, ARS8 billion?

Yes.

But you have already lent it? You have already given ARS8 billion on this line of finance.

That is as of the third quarter of 2016.

Okay. Perfect. And then to reach this target, you need to increase this by how much?

It will depend on the level of the deposit that we have as of December, that levels has to be calculated and we have to reach that 18% of the private sector deposits as of June (inaudible).

Okay. In other words, what's the percentage to that, if ARS8 billion, they represent of your private sector deposits, it's 9%. Is that right? And then, so you need to double this line to reach the target?

Sorry, I couldn't get that. Sorry. Can you repeat that?

The ARS8 billion represents 9% of your total deposits today. So if you need to get to 18%, you will roughly need to double this line of financing.

Yes, that's approximately the calculation, yes.

Okay. And what will be the impact on your net interest margin if that were to happen? Do you have any estimate?

No, that is considered in the question that I was asked before, that Carlos Macedo asked about the margin. That is being calculated there. So, that's why the forecast that we have for 2017 is including 50 basis point reduction on average compared to the average of 2016.

(Operator Instructions) Carlos Gomez, HSBC New York

Hi, good morning and congratulation on the results. My first question is what is your expectation for the exchange rate to dollar, by the end of this year and by the end of next year?

Second, do you have any type of concern that the corporates or the provinces are now borrowing in US dollars? And are you taking any measures in case that they may have some type of currency mismatch?

And finally, and I think we have asked this already, that, what are you seeing on a day-to-day basis in terms of demand? You mentioned that you are starting to see a little bit more of demand on the corporate side. Has the retail market in anyway have recovered during the third quarter? Thank you.

Hi, Carlos. In terms of our FX position, if I'm not wrong, I didn't hear it correctly that you were asking. Basically, we are slightly short the peso. Basically, what we are forecasting is that the nominal depreciation of the peso against the US dollar is going to be below the level of the nominal interest rate that we could get on the LEBACS, for example. So we are approximately 3% short in our FX position. And the forecast for the nominal FX for the end of this year is 15.5% and for the end of next year is in the area of 18.25% or 18.5%. And could you repeat me please the third question?

Yes. Are you concerned about any currency risk that the corporates or the provinces may be taking by borrowing in US dollars?

No. In terms of the corporates, no, we are not seeing many corporates taking US dollars. And I think that at some point those corporates and at some point the provinces are trying to hedge that on the futures market. But, if I have to choose, I would say that -- I would be a bit more worried on the public sector than on the private sector. But honestly, for the moment, that is not the main concern.

And the last question, of course, about demand that you see any retail demand picking up in the fourth quarter or not yet?

I mean, retail is or consumer, basically what we are seeing is maybe slightly lower growth rate in those or in that segment compared to the level that we were accustomed to see in the former years with the [former administration] where consumption was the main driver for the economy. The point is that we have a big portfolio for the consumers. So even though we are seeing lower growth rates in terms of the absolute level, it's attractive. But, for next year, we are expecting that consumer sector to continue demanding slightly below the commercial.

There are no further questions at this time. This concludes the question-and-answer session. I will now over to Mrs. Ines Lanusse for final considerations.

Thank you for your time and have a good day. Bye.

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