Banco Macro SA (BMA) 2017 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 2017 Earnings Conference Call. We would like to inform you that the first quarter 2017 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. (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; Mr. Nicolás Torres, IR; and other members of the bank's management team. Now I will turn the conference call over to Mr. Jorge Scarinci. Mr. Scarinci, you may begin the conference, sir.

Okay. Good morning, everyone, and welcome to Banco Macro First Quarter 2017 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.

The first quarter result 2017 press release was issued yesterday and also is 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 445 branches. Even though we are a universal bank, we focus on low to middle income individuals and small and medium-sized companies. Banco Macro is the financial agent of 4 provinces in Argentina: Salta, Jujuy, Misiones and Tucumán.

I will now briefly comment on the bank's first quarter 2017 financial results. Banco Macro's net income for the quarter was ARS 1.8 billion or 4% higher than the ARS 1.7 billion earned in the previous quarter and 25% higher than the ARS 1.4 billion posted a year ago based on an increase in net financial income and an increase in net fee income. The bank first quarter 2017 ROE and ROA of 30.5% and 4.6%, respectively, remain healthy and it shows the bank's earnings potential. The operating result for the first quarter 2017 was ARS 3.0 billion, increasing 14% or ARS 377 million on a quarterly basis, and 40% or ARS 854 million on a yearly basis. Had the income government and private securities and income from payer warranty loans and CER adjustments been excluded, operating results would have been 118% higher quarter-on-quarter and 99% higher year-on-year.

In the quarter, net financial income totaled ARS 4.7 billion or 42% higher than the ARS 3.3 billion registered 1 year ago. This performance can be traced to an 18% year-on-year increase in financial income and a 6% year-on-year decline in financial expenses. Within financial income, interest on loans rose 5% quarter-on-quarter due to a 13% growth in the average private loan portfolio and a 160-basis point decrease in the average private sector lending interest rate.

In the first quarter 2017, interest on loans represented 80% of total financial income, increasing 3% compared to the fourth quarter of 2016. On a yearly basis, interest on loans rose 22% or ARS 1.1 billion.

Net income from government [backed] securities decreased 45% or ARS 714 million quarter-on-quarter, mainly due to lower LEBACs volume and lower interest rates. This decrease in LEBACs income was partially compensated with higher income from reverse repurchase agreements. Compared to the first quarter of 2016, the net income from government and private securities declined 14% or ARS 147 million.

In the first quarter of 2017, other financial income was ARS 361 million higher than the result posted in the first quarter 2016 and ARS 441 million higher than the last quarter. This increase is based on higher reverse repurchase agreement within the financial system and the Central Bank of Argentina.

In the quarter, financial expenses totaled ARS 3.0 billion or 11% on ARS 371 million decrease compared with the fourth quarter of 2016 and 6% or ARS 194 million on a yearly basis. Within financial expenses, interest on deposit declined 14% or ARS 343 million quarter-on-quarter, mainly due to a 200-basis point decrease in the average time deposit interest rate.

In the first quarter of 2017, interest on deposit represented 72% of the bank's financial expenses, 2% lower than in the fourth quarter 2016. As of the first quarter of 2017, the bank's net interest margin was 18.3%, slightly higher than the 18.2% posted in the previous quarter and wider than the 16.7% posted 1 year ago. Had income from government and private securities and warranty loans been excluded, the bank's net interest margin would've been 17.5% in the quarter, wider than the [15.3%] in the previous quarter and the 15.2% posted 1 year ago.

In the first quarter of 2017, net fee income totaled ARS 1.7 billion or with an increase of 9% or ARS 135 million on a quarterly basis with a 6% increase on fees charged on deposit accounts and an 8% increase in other fees. On a yearly basis, net fee income increased 43% or ARS 505 million.

In the first quarter of 2017, Banco Macro administrative expenses totaled ARS 3 billion and rose 5% quarter-on-quarter, mainly due to an increase in personnel expenses, primary higher salaries and higher other operating expenses. Compared to the first quarter of 2016, administrative expenses were 40% higher.

Personnel expenses increased 10% quarter-on-quarter and grew 48% on a yearly basis, basically due to a higher sized bonus and other personnel expenses. The significant increase in personal expenses can be traced to salary increases agreement being closed in different quarters during 2016 was in the second quarter, and in 2017, was in the first quarter.

The efficiency ratio reached 47%, down from the 47.5% posted in the previous quarter and from the 47.9% posted 1 year ago. This result -- sorry, this was a result of a 5% increase in administrative expenses and a 9% increase in net financial and net fee income, as a whole in the first quarter of 2017.

The income tax effective rate for the quarter was 40.5% compared to the 35.1% registered in the second quarter of last year. This increase in the effective income tax rate is due to an increase -- sorry, due to the income tax being paid on the calculation of warranty loans and the portfolio of local shares being sold completely in the first quarter of 2017.

In terms of loan growth, the bank's financial -- financing to the private sector grew 8% quarter-on-quarter, 50% year-on-year, among which commercial loans for productive investments have been included. It is important to mention that Banco Macro's market share over private sector loans as of March 2017 reached 8.3%, increasing 90 basis points in the last 12 months.

On the funding side, total deposit grew 3% quarter-on-quarter and 37% year-on-year. Private sector deposits were partially unchanged on a quarterly basis, while public sector deposits increased 36%. As of March 2017, Banco Macro's transactional accounts represented approximately 45% of total deposits and therefore, the bank's average cost of funds was 7.6%. Banco Macro's market share over private deposits as of March 2017 remains at a level of 6.7%.

In terms of asset quality, Banco Macro's nonperforming to total financing ratio reached 1.35% and the coverage ratio reached 155.9%. In terms of capitalization, Banco Macro accounted an excess of capital of ARS 18.8 billion, which represents a capitalization ratio of 22.7%. The bank's aim is to make the best use of this excess capital.

The bank's liquidity remained appropriate. Liquid assets to deposit ratio reached 44.7%. So overall, Banco Macro posted another positive quarter in our view. We are the best [capitalization] in Argentina. Our operating results jumped 40% year-on-year. We -- according to the cost-to-income ratio, we are the most efficient back in Argentina. Also, we were able to expand our net interest margin in the quarter. Loans grew 50% on a yearly basis and fees jumped 43% year-over-year. And also, we continue with an excellent and a controlled asset quality. Remember that the management is putting a focus on growth, efficiency, market share, so we are in that trend and we expect to continue there.

So at this time, operator, we would like to take all the questions that people might have.

(Operator Instructions) The first question we have comes from Carlos Macedo of Goldman Sachs.

Two questions. First, as you mentioned 50% plus loan growth in the first quarter year-on-year, you were targeting 35% for the full year or 15% in real terms. It looks like inflation might be a little bit higher than 20%. Where do you go from here? Is this a sustainable pace? Does it go down? I mean, where are you seeing demand? How do you see -- how are you going to deploy the capital that you now have that's, as you've said, very strong? I mean, how are you going to -- are you going to be able to sustain this kind of growth? Second question on margins. Improved quarterly reduction in [net backs]. Are you using the securities to fund your loan growth? Is this strategy something that will continue going forward? Is it something that will continue to help margins? How should we think about margins going out?

Carlos, according to your first question, from the moment we continue with our forecast of 35% loan growth nominal for this year, and we continue to have an inflation target according to the consensus of 22% for this year. So it's going to be a real growth of rate of 13% midpoint. And for the moment, we are maintaining that forecast. Demand, we expect this to pick up from the second quarter onwards. We saw something in April happening. So we expect second quarter onward to see stronger loan demand across the board, both consumer and commercial. In terms of margins, I think that something that we have compared to our peers is first of all, that we have much more consumer lending and commercial lending. And of course, most of this consumer, which are personal loans and credit cards, are to -- are tied to payroll. So that's why they have good asset quality and of course, the attractive margins. Plus on the liability side, that's -- we could be -- we were able, in the quarter, to at some point reduce the average cost of funds to a very low level. So I think that's where we have the margins, plus that we were -- as we've done in the past, continue investing in LEBACs and [reposting payment] on the interest rates. Going forward, I think that what we should be seeing the economy, at some point, in early June onwards, is some decline in domestic interest rates. And at some point, that could be affecting part of our loan book interest rate. So going forward, what we are seeing is that margin should be -- maybe evolving slightly. We're forecasting that, for this year, on average, it was a 50-basis point decline in margins compared to 2016. For the moment, we continue with that forecast also.

Okay. Just one follow-up on the first question. You're now at well above 15% real growth year-over-year. Do you think there is risk to the upside for your growth forecast?

Yes. I think that if we see an acceleration in the economy, third or fourth quarter could be maybe -- if they were stronger than expected, the 35% could be a bit low. But that is something that we have to wait. For the moment, we continue with the 35%.

Next, we have Nicolas Riva of Citi.

My question is on the equity offerings. So we saw the shareholders approved in the meeting last week, the capital increase of 74 million shares. Given that right now you're very well capitalized, can you discuss in which cases would you do this equity offering? What would be the trigger to do the equity offering it would be a potential acquisition? And also, any word on the timing for this potential offering?

The equity offering that was approved in the shareholders meeting, which was also approved there was the increase on the debt program from ARS 1 billion to ARS 1.5 billion. These processes are going to last for 2 years. So the idea is that we want to have all the elements in our hand in order to continue growing both organically and inorganically. I mean, we cannot say anything about any acquisition because we don't know. We cannot say any time table. But for the next 2 years, we want to have all the elements in terms of [bank] and equity offering. They are available in the case that we need them, either for organic growth that could be maybe coming stronger than previously expected or for a potential acquisition in the future. But what's basically -- those approval was [thought] to have all the elements ready in the hand, in case we need it.

And one more question. I know that next year, Argentine companies are going to be adopting IFRS financials. In your press release, I didn't see which would be the adjustment, increasing book value because of [everything with] IFRS. Can you say that because I believe that there will be an increase in the value of your fixed assets, considering that market prices instead of (inaudible) costs?

Yes, this is something that we are going to include in the note at the complete financial that be will be available shortly. According to your questions, I would say an approximate calculation, in terms of increasing the equity base that we could be having under IFRS. It's in the order of 16%.

16%? 1-6?

Yes, 1-6, yes.

And the next question we have comes from Domingos Falavina of JPMorgan.

My -- it's actually a bit of an addition to the first question. We have been reading here in some newspapers that you are, together with Itau, potentially a finalist on the bid for a local bank in Argentina. So just wanted to be sure, the mention on the M&A, you mentioned more medium, long term, but are you involved in some kind of acquisition in the short term? And how is the outlook for that? And the second one is very quickly on the results on the [back half]. Your loans grew very healthily and compensated for the results on government securities. But it did strike to me as a little bit light for a more recurring rival, because the contraction in the results from government was a little bit above what was back in Argentina contracted. I just want to understand if you think that's sort of a normalized level for government result -- government securities results or if we could see a little bit of an increase in that line going forward.

Let's start with the second question. No, I think that in the coming quarters, you are going to see maybe slightly higher income from the LEBACs because now, from second quarter onwards, we are focusing on investing on LEBACs in terms of the reverse repurchase agreements. So that line should be slightly higher on the first quarter going forward. On your first question, again, we don't have any time table in terms of acquisitions. That will depend on the market. We think that there's a consolidation process that will come in the Argentine banking sector because the 77 banks that we are right now is too much for the markets, and for the future that we are forecasting growth in the economy, more penetration in the system. I would say that some smaller banks will need more scale and capital. So the number of banks should shrink going forward in Argentina. But again, it will depend on market condition, from economy, from a microeconomic point of view, in terms of the bank that want to leave. So it depends on that. We don't have any specific time table.

(Operator Instructions) Next we have Carlos Gomez, HSBC.

Two questions. The first one is regarding your foreign current acquisition. The Central Bank has now allowed for banks to have a larger ForEx exposure. Do you intend to maintain your current balance stance? Or would -- you be willing to have some of your capital in U.S. dollars? And the second refers to a [personal] credit card acquirer. Could you remind us what level of ownership do you have, [if any]?

Okay. Thanks, Carlos. The second question, we have from 7.6% stake in that company. And on your first question, according to our FX position, we are slightly -- now slightly short on the dollar. We noted that the government, through the Central Bank -- sorry, the Central Bank increased the percent that we could have in terms of long or short according to our equity. But for the moment, we are slightly short on the dollars. We expect for the next coming, maybe 90 days at least, that the peso will be quite strong, so that's why we are slightly short on the dollar.

Very good. And you can confirm, you have sold all your equity positions, in Argentine equities?

Yes, that was completely sold in January this year.

In January, so you [need some]?

Sorry, what was that?

[You need some] upside.

No.

The next question we have will come from Gabriel Nóbrega of UBS.

So in the quarter, we saw your NPL levels rise a bit. I just want to get a bit more color on what happened, and if you think it's a sustainable level for the rest of the year.

Well, I think that these levels are extremely low and at some point, in the last year's inflation -- have been positive for [dragging] the banking sector to paying these levels of NPLs. Going forward, if we are going -- if we are forecasting with actually an inflation rate and of course, in interest rates, I think that the level of NPLs should be going up in the mid run. I mean, I would say for this year, we are not seeing changes -- dramatical changes in terms of NPLs. We could be seeing the area of 1.5%, 1.6% by the end of the year but totally manageable.

So going forward, of course, more in the long run, we should be seeing, [in terms of the] margin sectors levels in the area of 3% or 3.5%, but we need inflation to be below 10% and of course, banking penetration to be much higher.

Next we have Alonso Garcia of Crédit Suisse.

I just want to touch base on some key revenues. We saw a very nice sequential increase of 9% quarter-on-quarter. The year-over-year growth is at 44%. Could you please comment on your expectations for net fee growth for the full year? And also, in regard to the previous question, what kind of cost of risk should we expect for the full year?

In terms of second question, cost of risk, we are forecasting that to be in the area of 1.6%. So relatively stable compared to last year or slightly increasing. But 1.6% is something that you could use for your model. In terms of net fee income growth for this year, we are trying to be in the area of the mid-20s or if we could, in the high 20s. But for your model, I would assume, let's say, mid-20s.

Well, then it appears to be no further questions at this time. This concludes the question-and-answer session. I will now turn the floor back over to Mr. Jorge Scarinci for any closing considerations. Sir?

Yes. Thanks, everyone, for joining us. And of course, keep in touch in case you need additional information. Thank you. Have a good day.

All right. And we thank you, sir, also to the rest of the management team for your time. The conference call is now concluded. Again at this time, you may disconnect your lines. Take care, and have a great day.