Banco Macro SA (BMA) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we'd like to welcome everyone to Banco Macro's Third Quarter 2017 Earnings Conference Call.

We would like to inform you that the third quarter 2017 press release is available to download at the Investor Relations website of Banco Macro, that is www.ri-macro.com.ar.

Also, this event is being recorded. (Operator Instructions) It's 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.

Thank you, Brian. Good morning, and welcome to Banco Macro's 3Q 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 press release was distributed yesterday, and it's also available at our website.

I will now briefly comment on the bank's 3Q '17 financial results. Banco Macro's net income for the quarter was ARS 2.6 billion or 29% higher than the ARS 2 billion earned in the previous quarter, and 59% 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 3Q '17 accumulated ROAE and ROAA of 28.7% and 4.9%, respectively, remains healthy and show the bank's earning potential.

The operating result for 3Q '17 was ARS 4.4 billion, increasing 24% or ARS 832 million quarter-over-quarter, and 72% or ARS 1.8 billion year-over-year.

In the quarter, net financial income totaled ARS 6 billion, 15% higher than the ARS 5.2 billion registered in 2Q '17, and 52% higher than the result posted 1 year ago.

This performance can be traced to a 29% year-over-year increase in financial income and a 3% year-over-year increase in financial expenses.

Within financial income, interest on loans rose 10% quarter-over-quarter with 12% growth in the average volume of private loan portfolio and a decrease of 100 basis points to the average private sector lending interest rates. In 3Q '17, interest on loans represented 74% of total financial income. On a yearly basis, interest on loans rose 27%, or ARS 1.5 billion.

Net income from government and private securities increased 31% or ARS 418 million quarter-over-quarter, mainly due to higher Lebacs volume and higher interest rates.

Compared to the previous year, net income from government and private securities increased 11%, or ARS 170 million.

In 3Q '17, financial expenses totaled ARS 3.6 billion, up 14% or ARS 440 million increase compared to 2Q '17, and 3% or ARS 109 million higher on a yearly basis.

Within financial expenses, interest on deposits increased 11% or ARS 242 million quarter-over-quarter, mainly driven by a 12% increase in the average volume of time deposits and compensated by a 30 basis point decrease in the average time deposit interest rate.

In 3Q '17, interest on deposits represented 77% of the bank's financial expenses, 2% lower than in the previous quarter.

As of 3Q '17, the bank's accumulated net interest margin was 17.3%, lower than the 17.8% posted in 2Q '17 and the 18.5% posted in 3Q '16.

Had income from government and private securities and guaranteed loans been excluded, the bank's accumulated net interest margin would have been 16.2% in 3Q '17, 100 basis points higher than the 15.2% posted a year ago. In 3Q '17, net fee income totaled ARS 1.9 billion.

Quarter-over-quarter, net fee income grew 4% or ARS 75 million, with a 7% increase in fees charged on deposit accounts and a 12% increase in debit and credit card fees.

On a yearly basis, net fee income increased 34% or ARS 476 million.

In 3Q '17, Banco Macro's administrative expenses totaled ARS 3.2 billion, and rose 5% quarter-over-quarter. Personnel expenses increased 3% quarter-over-quarter and 17% year-over-year due to salary increases. Compared to 3Q '16, administrative expenses in 3Q '17 were 23% higher.

As of September 2017, the accumulated efficiency ratio reached 43.3%, down from 45% posted in the previous quarter and 47% in 3Q '16. This was as a result of a 5% increase in administrative expenses, in line with the bank's process of improving efficiency and a 12% increase in net financial and net fee income as a whole in 3Q '17. Banco Macro continues to be the most efficient bank in Argentina.

3Q '17 Banco Macro's effective income tax rate was 38.9% compared to 39.4% registered in 2Q '17.

In terms of loan growth, the bank's financing to the private sector grew 12% quarter-over-quarter, 54% year-over-year, among which commercial loans for productive investments have been included. It is important to mention that Banco Macro

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Okay. Hi, everyone. We apologize for being disconnected. My name is Jorge Scarinci. I'm the CFO of Banco Macro. So I think that to make it briefer, we can go to the questions that you might have.

(Operator Instructions) And our first question comes from Gabriel Nóbrega with UBS.

During this quarter, we saw your loan growth accelerating significantly 55% year-over-year. And I just want to get a bit more color from you on what sectors are you experiencing this growth, and if we should expect similar growth in the last quarter of [2012] and also going into 2018? And my second question, it's regarding your capital base. We see the Tier 1 ratio continue being above the level of 20%. And I just want to get a bit more sense of what are your strategies to using this excess capital? Is it for a possible acquisition? Or even a special dividend?

Hi, Gabriel. Thanks for your question. In terms of your first question, in terms of loan growth, yes, we are expecting another -- I mean, in the fourth quarter, we expect this loan demand to continue strong. So I would say that right around '17, we will be finishing approximately around 50% loan growth compared to 2016. And we are forecasting, for the moment, 40% nominal growth for 2018. So another year with strong demand with GDP also growing in the area of 3% for Argentina.

In terms of your second question, yes, we have excess capital because of the follow on that we did in the past June, well, as you may know we are involved in a transaction that is taking maybe longer than expected, so the idea is to -- if it is possible to successfully finish this transaction as soon as possible. If not, the idea is to continue growing really fast. That's what we are doing right now in terms of organically speaking. Also, according to your comments, we are having the next Shareholders' Meeting in April, so maybe the payout ratio to be increased could be a point to be considered, but that is something that the board is going to be considering in March.

Your next question comes from Nicolas Riva with Citi.

I have 2 questions. The first one is going to be on the management changes. We saw the announcement of Jorge Brito stepping down as CEO, if you could explain to us what was the reason for this change. Should we expect to see any relevant change in the bank's strategic direction with Gustavo Manriquez as the new CEO? And really, can you give us any indications in terms of the bank's M&A strategy? I know you said to grow in Buenos Aires. And also, what's going to be kind of the role of the Britos family going forward because, well, Jorge Horacio is no longer going to be a CEO. And also, his son is no longer going to be the CFO. So that's my first question, and then I have a second question.

Hi, Nicolas. I mean, these are the changes that we have been talking for the last almost 2 years with the incorporation of Gustavo Manriquez, being now the CEO. I would say that the idea is to have more compliance with the other big companies vis-a-vis the new stock exchange and the idea of Banco Macro is to maintain the families at the board level. So that is the message that we have been commenting and saying for the last almost 2 years as I mentioned before.

So I would say there's not going to be any change in the strategy of the bank. This is something that, in the papers, Gustavo was carrying on for the last 18 months, so this is a kind of officialization of Gustavo being the CEO. And I have to say that the same happened with me. That in the papers, I was, like, the CFO, but Jorge Pablo was named CFO, and now I was named CFO. So again, the families will be at the board level. The strategy of the bank will continue to be the same as it has been right now.

And the second question on the -- in relation from the Central Bank announced last week regarding the directed lending line for the SMEs, which is going to be phased out by the end of next year. Have you assessed -- because of course, it should be positive for the banks, but have you assessed what should be the impact on the bank's bottom line for next year and for 2019?

Well, we are doing those calculations, but if you take, let's say, separate values analysis and you have a direct impact, one-time impact, the impact on the bottom line of the bank is approximately in the area of ARS 500 million. I would say that it's going to be like between 5% and 7% of net income. So the impact is something to be considered, but it's not that much. In terms of margins, I would say that the expansion of the net interest margin would be in the area of 50 basis points. And I would add also that this is, in our view, positive in the sense that the Central Bank is, once again, eliminating the regulations that the former administration have implemented. And we are in the phase of a new, I would say, stage or period for Argentina with less regulation, more competition. So this is something positive for the country, and, of course, for the industry.

And Jorge, one thing, in those numbers that I believe you said ARS 500 million impact on net income, are you assuming that you would be lending these loans like you have now for the SMEs at 17%? Are you assuming that you will be relending those resources at what, like, at BADLAR, at the current 22%? Or what are the assumptions behind that?

No, the assumption, just to give you a quick number, is that we will be extending those loans instead of 17%, at 25%. That is the average rate on the loan portfolio that we published in this third quarter.

Next question comes from Frederic De Mariz with UBS.

Jorge, just to follow up on the previous question on the directed lending rules that are being phased out for next year. Can you remind us what is the duration of that type of rates -- that type of credits, loans in order to get a sense of how fast you will see the improvement, the boost in margins, that 50 basis points that you mentioned?

And then the other question I have, more general on margins. When you think about all the moving parts for next year, higher bank rates, that new rule on directed lending and other changes we've seen for funding, and so on, what's your latest thinking on margin trends? What would be your latest guidance or latest thinking on that line?

Hi, Frederic. Your first question on the duration on these loans that we have is 14 months, so slightly above 1 year. On your second question about margins, yes, we are seeing that the Central Bank would remain with high rates until maybe March, April next year and then we could start seeing some decrease in rates. Of course, this is going to be -- looking at what the inflation behavior is at that time. So depending on that, the Central Bank will be releasing rates by then. That's our estimate for the moment. So I would say that for next year, margins are going to be relatively stable on average compared to the average 2017. There's not going to be a dramatic change in the margins that is what we are estimating for next year.

The next question comes from Yuri Fernandes from JPMorgan.

Congratulations, Jorge. I have a question on the potential tax reform. Can you give us some color on it? What's the impact you expect from banks? How positive it should be for you? And just coming back to the first question you had, like on the loan growth, can you formulate a little bit more on specific segments believed to do better next year? So far, we have been seeing the business loans doing better especially the U.S. dollar ones. But for 2018, do you think the (inaudible) will decelerate? What's your view between the segments?

In terms of with your first question, I think this is -- the project of this tax reform has to be discussed, of course, at the Congress. So our feeling is that there will be some modifications on the original project. What we have been seeing for the moment in terms of the movements in the banking sector, in terms of deposits, switch between peso-denominated deposits into dollar, whatever, there's basically no impact at all. I think that if the original project is approved, a 5%, let's say, income tax rate on the yield that you get in different type of financial instruments is not that much when you compare, for example, an interest rate of 25%, the net interest income would be 23.5 if you deduct that. So the impact is really small.

So for the moment, we are not seeing major impact in the banking industry according to the tax reform. So we're not seeing changes in the currency, so people leaving the CDs in order to put in the dollars, that is something that we are not seeing for the moment. In terms of loan growth, I would say that when you look at what's going on in Argentina and, of course, you look at our numbers and other listed banks' numbers, you would see that loan growth is across the board from consumer to commercial and also with -- now the increasing in mortgages that we are leading here. So I would say that we expect both consumer and commercial loans to continue having a robust demand in 2018. So similar than what we are seeing this second half of 2017.

(Operator Instructions) The next question comes from Carlos Gomez with HSBC.

First, congratulations on at least your new title. We have a question regarding expenses. You said your personnel expenses increased only 17%, which is below the rate of inflation. We wonder if you could give some explanation about that. How you can you have such a high level of activity with -- while controlling expenses at that low level. Second, wonder if you can give us any -- a little information about the timing of this transaction that you are involved in?

Well, your first question, I would say that we -- I have to include here (inaudible) Gustavo Manriquez, he's doing a good job and tough at the same time at looking at expenses with a very close eye. And I would say that the results are there, and we are having extremely positive efficiency ratios in terms of cost to income. I would say the best in the industry and reaching levels that we believe that we were going to reach maybe next year.

This is something that across the board and including all the managers, we are trying to keep expenses extremely under control in all other issues that are not salaries that you, of course, know that are negotiated once a year with the unions. But I will say that this is something that we have been working on these for a long time. But when Gustavo was appointed, I think that he has been putting more pressure, and believe me, on expenses. So this is extremely positive.

In terms of the transaction that we are ongoing, of course, it's taking much longer than expected. We thought that this could be closed by the end of June or maybe mid-July. But -- well, the ball is not in our side, but we are, I would say, positive that we might have maybe positive news in the short run. But again, the timing is something that we are not managing for the moment.

At this time, there are no other questions in the queue. So this will conclude our question-and-answer session. I would now like to turn the conference back over to management.

I'm sorry, we do have another question that just came in. It looks like we have a question from Santiago Petri with Franklin Templeton.

I would like to know your comments about this inflation adjust in loans. The [OAS] inflation has been resilient. So I mean, do you see any kind of concern in this type of loan?

Hi, Santiago. No, I would say that this is extremely important for the people to have access to this type of loan because the most important thing for a person, I think, is his home. I think that we have a -- the top of the cap on the 25% of the salary that can be designated to the payment of the installment and cannot be more than that. So that is putting less pressure in terms of NPLs coming from here. So I would say that no, for the moment, we are not having a concern here.

I think that in terms of the supply of [real estate of] Argentina, we are going to see much more new projects coming because the demand is strong. And we, Banco Macro, have been the first bank to issue this type of loans tied to [OAS] for developers. So we are also looking at the demand, but at the same time, we are looking to the supply. So that is what we think about that.

At this time, there are no other questions in the queue. So we'd like to conclude the question-and-answer session and turn the call back over to management for final considerations.

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.