Banco Macro SA (BMA) 2017 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 Banco Macro's 2Q '17 Earnings Conference Call. We would like to inform you that 2Q '17 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 over to Mr. Nicolás Torres, you may begin your conference.

Good morning, and welcome to Banco Macro's 2Q '17 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. 2Q '17 press release was issued yesterday and it's 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 449 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 4 provinces in Argentina: Salta, Jujuy, Misiones and Tucumán.

I will now briefly comment on the bank's 2Q '17 financial results. Banco Macro's net income for the quarter was ARS 2 billion, or 14% higher than the ARS 1.8 billion earned in the previous quarter, and 4% higher than the result posted a year ago. Based on an increase in net financial income and an increase in net fee income, the bank's 2Q '17 accumulated ROE and ROA of 30.7% and 4.7%, respectively, remain healthy and shows the bank's earnings potential.

The operating results for 2Q '17 was ARS 3.5 billion, increasing 18% or ARS 549 million quarter-over-quarter and 31% or ARS 840 million year-over-year. Had income from government and private securities and income on guaranteed loans and in CER adjustments been excluded, operating result would have been 254% higher than the results posted a year ago. In the quarter, net financial income totaled ARS 5.2 billion, 13% higher than the ARS 4.6 billion registered in 1Q '17, and 26% higher than the result posted a year ago. This performance can be traced to an 11% year-over-year increase in financial income and an 8% year-over-year decline in financial expenses.

Within financial income, interest on loans growth 6% quarter-over-quarter due to an 11% growth in the average volume of the private loan portfolio, and 130 basis points decline in the average private sector lending interest rates. In 2Q '17, interest on loans represented 77% of total financial income, decreasing 3% compared to 1Q '17. On a yearly basis, interest on loans rose 21% or ARS 1.1 billion. Net income from government and private securities increased 57% or ARS 492 million quarter-over-quarter, mainly due to higher LEBCA volume and higher interest rate.

The increase in the LEBCA income was partially compensated by lower income from REPOs. Compared to 2Q '16, net income from government and private securities declined 32% or ARS 655 million. In 2Q '17, financial expenses totaled ARS 3.1 billion, a 5% or ARS 150 million increase compared to 1Q '17 and 8% or ARS 266 million lower on a yearly basis. Within financial expenses, interest on deposits increased ARS 9 billion quarter-over-quarter, mainly driven by a 2% increase in the average volume of time deposits on a 30 basis point decrease in the average time deposit interest rates. On a yearly basis, interests on deposit decreased 21% or ARS 556 million. In 2Q '17, interest on deposits represented 69% of the bank's financial expenses, 3% lower than in 1Q '17. As of 2Q '17, the bank's estimated net interest margin was 17.8%, lower than the 18.3% posted in 1Q '17 and the 18.8% posted in 2Q '16.

Had income from government and private securities and guaranteed loans been executed, the bank accumulated net interest margin would have been 16.9% in 2Q '17, lower than the 17.5% posted in 1Q '17 but higher than the 15.3% posted a year ago.

In 2Q '17, net fee income grew 8% or ARS 133 million quarter-over-quarter, with a 6% increase on fees charged on deposit accounts and 73% increase in credit related fees. On a yearly basis, net fee income increased 41% or ARS 528 million.

In 2Q '17, Banco Macro has administrative expenses totaled ARS 3 billion and rose 3% quarter-on-quarter. Personnel expenses decreased 1% quarter-over-quarter but increased 23% year-over-year due to salary increases. Compared to the previous year, administrative expenses were 25% higher. As of June 2017, the accumulated efficiency ratio reached 45%, down from 47% posted in the previous quarter, and 46.3% in 2Q '16. This was the result of a 3% increase in administrative expenses, in line with the bank's focus of improving efficiency and a 12% increase in net financial and net fee income as a whole in 2Q '17.

2Q '17 Banco Macro's effective income tax rate was 39.4% compared to 40.5% which is in 1Q '17. In terms of loan growth, the bank's financing to the private sector grew 12% quarter-over-quarter and 49% year-over-year, among which, commercial loans for the productive investments have been included. It is important to mention that Banco Macro's market share over private sector loans as of June 2017 reached 8.3%, increasing 50 basis points from June 2016.

On the funding side, total deposits grew 7% quarter-over-quarter and 36% year-over-year. Private sector deposits grew 10% quarter-over-quarter and 40% compared to Q2 '16, while public sector deposits decreased 17% quarter-over-quarter. As of June 2017, Banco Macro's transactional accounts represented approximately 49% of total deposits. And therefore, the bank's average cost fund was 7.3%. Banco Macro's market share of the private deposits as of June 2017 reached 6.9%, increasing 10 basis points from June 2016. In terms of asset quality, Banco Macro's non-performing to totaled financial ratio reached 1.27% this quarter. The coverage ratio reached 168.08%. In terms of capitalization, Banco Macro accounted an excess of capital of ARS 28.8 billion, which represented a capitalization ratio of 26.3%. Both the excess capital and the capitalization ratio were affected by the primary follow-on equity offering of ARS 74 million Class B common shares, ARS 10.7 billion increase in Tier 1, conducted in June. Had the equity offering not been conducted, the capitalization ratio would have been 21.8%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained appropriate. Liquid assets to total deposits ratio reached

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The speaker line has been reconnected. Please go ahead.

Okay. The bank's liquidity remained appropriate. Liquids assets to total assets -- deposits ratio reached 53.2%.

Overall, we have accounted for another [weak] quarter. We continue to show that strong financial position, asset quality continues to be under control and closely monitored. We keep on working to improve more our efficiency standard and we keep (inaudible) deposit base. At this time, we would like to take questions you may have.

(Operator Instructions) The first question comes from Nicolas Riva of Citi.

My question is on capital. So right now, your excess capital is standing at USD 1.6 billion, I wanted to ask what's the plan to use this excess capital and in particular, if you're still pursuing the acquisition of Banco Patagonia.

Again, I apologize for the cut off. There's not a lot that we can say because of confidentiality agreements but basically, we made an offer down on the transaction that you mentioned that lasted for 30 years. Honestly, we are in a wait-and-see position there. And 30 days, sorry. And we are in a wait-and-see position there. Meanwhile, as we have been saying, I mean, we continue looking at opportunities to deploy the excess capital that are accretive to our shareholders in a very disciplined way. And so that's the idea that we have for the excess capital, as we have always have been commenting, to make the best use of that.

Thanks, Jorge. And just a follow up, if you are not to be successful in your offer for Patagonia, the priorities for the use -- or for the deployment of the excess capital, in terms of priorities, first, would come looking at another acquisition or just waiting for -- to deploy that capital organically?

I mean, we are not going to be waiting for another opportunity. We continuously look at opportunities. We think that there will be opportunities for acquisitions in Argentina because of the consolidation that we are foreseeing in the system. But meanwhile, we are going to put more pressure on organic growth. So it's going to be a combination of both.

The next question is from Frederic De Mariz of UBS.

I have 2 questions on my side. The first one just a follow-up on the initial question on capital. Can you remind us when that 30-day period would end? And the other question on capital is, if you were to be successful in Patagonia, would you have to raise more capital? Would you need to deduct the (inaudible) well from your capital base, or do you think the capital that you have right now is sufficient? That's on the first question. The second question is more -- I was interested to get a bit of your insights and color on the trends in margins. You had a very good quarter in terms of margins and I wanted to see what you're expecting for the second half of this year, in particular, securities income was strong again in the quarter. So just wanted to get a bit more color on this line.

Fred, again, we cannot comment in many details on the transaction that you are mentioning. So honestly, I cannot give you more details on that. I mean, the 30 days, due 2 weeks ago, that's all information I can give you related to that. So going back to your second question, on the margins, we are seeing stable margins in the second half. What we are seeing is that the Central Bank is taking a bit longer in order to reduce the interest rates and therefore, we are seeing more stability on the market in the second half than the one that we previously forecasted at the beginning of the year. And therefore, in terms of securities income, we think that the said liquid we have that is allocated mainly in LEBAC is going to remain similar levels than the one that you saw in the second quarter.

The next question is from Carlos Macedo of Goldman Sachs.

I got a couple of questions. First question is on loan growth. I mean, earlier in the year, you were guiding for real growth, around 50%, so 35% growth in portfolio, 20% inflation. Inflation is a bit higher than that, but you are growing a lot faster and with this capital, as you do put it to use organically, you have the material to grow. 50% in the quarter up close, where do you think the growth come from? Is it corporate? What's driving it? What do you expect it to be for the end of the year? Do you think you can sustain this level of real growth through the end of the year and how do you take advantage of it? Second question is on that, the quality side. NPLs were strong or were better on the corporate book. Could you talk a little bit about that, give us some color on what drove that process, what do you expect the outlook there to be?

Carlos, loan growth is coming very, I mean, slightly stronger than what we have expected. I've seen that at the first half of the year, we have a forecast for 2017 for loan growth that was in the area of 35%. Now I would say that we are upgrading that to a level of 42% area for 2017, down those guide lines. Because we are seeing that demand is stronger, I would say across the board, when you look at the lines, not only from consumer but also from commercial, continue to see big part of commercial loan demand coming from working capital and a small portion from investment plans and this portion from investment plan is slightly increasing month after month. In terms of your second question, of NPLs, I think that we continue to show very good results in terms of asset quality, in terms of the corporate portfolio that is showing good performance. Of course, when you see that the economy is starting to recover, of course, there are some companies that can repay or reach an agreement to repay the non-accrual debt, plus that there are some writeoffs that we did after 1 year of being a non-performance. So it's a combination of both.

Okay. And on the loan growth, I mean, you did talk about it being broad-based in terms of the kind of company. Geographically, do you see it being broad-based as well? Or was there a concentration in interior or in Buenos Aires?

No, I would say it's across the board. There's no one specific province that is showing a good performance compared to other that is showing a very weak performance. No, I would say that's across the board.

The next question is from Erwin Cifuentes of Reorg Research.

Just a very quick question. I was wondering if you might be able to provide some flavors, some view in terms of the Argentine economy, specifically how it's performing currently, and what your expectations for the economy in terms of the rest of this year.

Well, according to all the indicators that are being published recently, what we are seeing is that little by little, there are more indicators showing positive performance on a quarterly basis, monthly basis, yearly basis. So even consumption that was a bit depressed in the first quarter, second quarter numbers are showing a better performance and therefore we are looking for a 3% real GDP growth for 2017. For next year, the consensus is looking for another 2.8% real GDP growth for 2018, of course. So I would say that the economy is maybe taking a bit more than expected to take off, but it's finally showing positive numbers in terms of performance in the difference sectors of -- and also in whole countries.

(Operator Instructions) The next question is from Juan Vazquez of Puente.

Congratulations on the results. I think they were positive across the board. I know you discussed already the Patagonia transaction, and in relation to that, we know that if it's not Patagonia, there may be other targets for you to consider. But in case you don't proceed with an acquisition for any reason, right, what are your thoughts on growing organically in an aggressive manner in the province of Buenos Aires and the city of Buenos Aires, what do you think about the process, or thought process in terms of the provision tagged in your balance sheet. And secondly, and this is more of a general question, I would say, we are seeing great demand picking up at very healthy real rate. But when do you think that the spread between BADLAR and LEBAC will compress? And this is, of course, taking into consideration the difficulty that the Central Bank may face on winding the expanded middle of LEBAC. And moreover, given the ample level of liquidity and in some cases, adequate capital ratios that we're seeing in some local banks.

In relation to your first question, we are going to maintain our strategy as we have been doing that for the last 16 years. So the idea is to grow as much as we can organically in different areas. The province of Buenos Aires and (inaudible) are the 2 main focus where we want to grow, but of course, we are not going to do that in a inefficient and expensive way. So there we are going to look for the most efficient and relatively cheaper way to do that in order to grow our market share, and also to have a -- to do that in a very accretive way as we have said it before. I mean, we continue to, again, maintain our strategy, focus on low to middle income individuals and SMEs that is our core businesses and that has been putting Banco Macro in the, I would say, the highest position among Argentine banks in terms of profitability and also efficiency. In terms of your second question, our view is that the LEBAC rate, it's going to maybe approach to -- the BADLAR rate maybe in the first to second quarter next year, that is the timing that we are seeing a narrow margin between LEBAC and BADLAR rates.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over Mr. Nicolás Torres for final consideration.

Thank you all for your interest in Banco Macro. We appreciate your time, and look forward to speaking with you again. Good day.

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