Banco Macro SA (BMA) 2018 Q4 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 Fourth Quarter 2018 Earnings Conference Call. We would like to inform you that the fourth quarter 2018 press release is available to download at the Investor Relations website of Banco Macro at 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. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolás Torres, IR. Now, I will turn the conference over to Mr. Nicolás Torres. Sir, you may begin your conference.

Good morning, and welcome to Banco Macro's 4Q '18 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. 4Q '18 press release was distributed on Friday and is also available at our website. As for fiscal year 2018, Banco Macro results are reported under Communication "A" 6114 of the Central Bank of Argentina. Figures for fiscal year 2017 have been restated in accordance with IFRS and some items have been reclassified in order to make a comparison between periods possible.

I will now briefly comment on the bank's 4Q '18 financial results. Banco Macro's net income for the quarter was ARS 5.2 billion, 37% or ARS 1.4 billion higher than in 3Q '18 and 67% higher than the ARS 3.1 billion posted a year ago based on an increase in net interest income and an increase in net fee income. The bank's 4Q '18 accumulated return on equity and return on assets of 30.7% and 5.8%, respectively, remained healthy and showed the bank's earning potential. On a fiscal year basis, Banco Macro earned ARS 15.8 billion in fiscal year 2018 or 55% higher than the ARS 10.1 billion earned in fiscal year 2017.

Net operating income before general, administrative and personnel expenses for 4Q '18 was ARS 16.2 billion, increasing 62% or ARS 6.2 billion year-over-year. Operating income after general and administrative expenses was ARS 7.6 billion, 81% or ARS 3.4 billion higher than a year ago. In fiscal year 2018, operating income totaled ARS 22.5 billion, 61% higher than fiscal year 2017. In the quarter, net interest income totaled ARS 12.3 billion, 19% higher than the ARS 10 billion registered in 3Q '18 and 66% higher than the result posted one year ago. This performance can be traced to a 128% year-over-year increase in interest income and a 276% year-over-year increase in interest expenses.

In fiscal year 2018, net interest income totaled ARS 39.6 billion, 64% higher than the ARS 24.1 billion registered in fiscal year 2017. Within interest income, interest on loans rose 26% or ARS 3.2 billion quarter-over-quarter due to a 7% increase in the average borrowing of loans and a 450 basis points increase in the average lending rate. On a yearly basis, interest on loans were 87% or ARS 7.2 billion higher.

In 4Q '18, interest on loans represented 65% of total interest income. During fiscal year 2018, interest on loans totaled ARS 47.5 billion, increasing 68% compared to fiscal year 2017.

Net income from government and private securities increased 77% or ARS 3.5 billion quarter-over-quarter, due to higher LELIQs volume and higher interest rates. Compared to 4Q '17, net income from government and private securities increased 294% or ARS 6 billion. In fiscal year 2018, net income from government and private securities totaled ARS 17.7 billion, 208% higher than the result posted in fiscal year 2017.

In 4Q '18, differences in quoted prices of gold and foreign currency totaled a ARS 729 million gain as a consequence of the 8% Argentine peso appreciation against the U.S. dollar and the bank's short FX position during most of the quarter. In 4Q '18, interest expenses totaled ARS 11.5 billion, a 78% or ARS 5 billion increase compared to third quarter '18 and 280% or ARS 8.5 billion higher on a yearly basis.

Within interest expense, interest on profits increased 87% or ARS 5 billion quarter-over-quarter, mainly driven by a 19% increase in the average volume of time deposits and a 640 basis points increase in the average time deposit interest rate. On a yearly basis, interest on profits increased 301% or ARS 8 billion.

In 4Q '18, interest on deposits represented 92% of the bank's financial expenses. In fiscal year 2018, interest on deposits totaled ARS 23.2 billion and were 150% higher than in fiscal year 2017.

As of fourth quarter of '18, the bank's accumulated net interest margin, including FX, was 14.9%, higher than the 14% posted in 3Q '18 and the 12.7% registered in 4Q '17. In 4Q '18, net fee income totaled ARS 3.1 billion. On a yearly basis, net fee income increased 38% or ARS 864 million.

During fiscal year 2018, net fee income totaled ARS 11.1 billion, 31% higher than in fiscal year 2017, with fixed charge on checking and checking accounts standing out.

In the quarter, other operating income increased 54% or ARS 633 million. Other income stands out with a ARS 548 million decrease compared to 3Q '18, given that there were no buybacks of corporate bonds during 4Q '18. On a yearly basis, other operating income increased 69% or ARS 218 million.

In 4Q '18, Banco Macro's personnel and administrative expenses totaled ARS 5.2 billion, an increase of 16% quarter-over-quarter. Employee benefits increased 16% quarter-over-quarter as a result of salary increases agreed with the union. Compared to 4Q '17, general administrative and personnel expenses in 4Q '18 were 46% higher.

As of December 2018, the accumulated efficiency ratio reached 37.9%, improving from the 39.1% posted in 3Q '18 and the 40.2% posted in fourth quarter '17. This was a result of a 16% increase in expenses and a 27% increase in net interest income, net fee income and other operating income as a whole. Banco Macro continues to be the most efficient bank in Argentina.

In fiscal year 2018, the accumulated efficiency ratio was 37.9%, significantly better than the 40% posted in fiscal year 2017. This was a result of a 38% increase in expenses and a 45% increase in income.

In fiscal year 2018, Banco Macro's effective income tax rate was 30.6% compared to 32.7% in fiscal year 2017. The statutory tax rate was cut in the latest tax reform bill, and as of January 2018, stands at 30% and it will be further reduced in January 2020 to 25%.

In terms of loan growth, the bank's financing to the private sector grew 2% quarter-over-quarter, 36% year-on-year. It is important to mention that Banco Macro's market share of private sector loans as of December 2018 reached 7.9%.

On the funding side, total deposits grew 12% quarter-on-quarter and 65% year-on-year. Private sector deposits grew 14% quarter-on-quarter and 67% compared to 4Q '17, while private sector deposits decreased 4% quarter-on-quarter. As of December 2018, Banco Macro's transactional accounts represented approximately 43% of total deposits. Banco Macro's market share over private deposits as of December 2018 totaled 7%.

In terms of asset quality, Banco Macro's nonperforming to total financing ratio reached 1.91%. The coverage ratio reached 117.74%. In terms of capitalization, Banco Macro accounted an excess capital of ARS 45.7 billion, which represented a total regulatory capital ratio of 26.5% and a Tier 1 ratio of 19.7%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remains more than appropriate. Liquid assets to total deposit ratio reached 57.1%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality continues under control and closely monitored. We'll keep on working to improve more our efficiency standards. We have one of the cleanest balance sheets in Argentina'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) Our first question today comes from Nicolas Riva with Bank of America.

Just 2 quick questions. First, on coverage of NPLs. We saw it continue to decrease now to 118% as of December. I believe that you guys have said that the idea was to drop this -- to use some of the excess coverage earlier last year. But now, how do you feel, with this coverage now, it's slightly above 100%? And if you have a target for the coverage for NPLs. And then second question on asset quality. We saw the continued increase in the NPL ratio now to 1.9%. Given what's going on in the economy in Argentina, what's your outlook for the NPL ratio for the end of this year?

Nicolas, this is Jorge Scarinci. For your first question, yes, you're right. We have been commenting this in previous calls. The idea that we built up the 180% coverage was in good times in order to use that excess in bad times. So we have been using that excess in the last 3 quarters. As always, we want to be above 100%. I would say that this is -- we are going to build up this ratio by the end of the year, ranging between 120%, 140%. We do not have a specific target, but we should be ranging there by the end of the year. In terms of asset quality ratio, well, imagine that the Argentine economy was down more than 2% in real terms in 2018. We were forecasting this recession by April, May. That's why we, at that time, decided to stop lending aggressively and focus on asset quality control. The 1.9%, I think, is totaling up [ARS 900 million] for us. And going forward, we think that the coming -- the first quarter and second quarter of 2019 are going to show similar levels. Maybe we are going to see some marginal improvement by the end of the year. So I would say we should be in the area of 1.5%, 1.7% by the end of the year, of course, depending on the economic reaction that we are forecasting to see in the third and fourth quarter.

Okay. So Jorge, I'll follow up on this. So basically, you are saying that we already reached probably the peak in NPL ratio. So we would be more or less stable this year?

Yes. I would say that the first quarter, maybe January to mid-February, that could be also seen as the lowest point of the economic cycle. Honestly, I don't know the exact number that we are going to post in the first quarter, but it's going to be similar than the one that we posted in the fourth quarter of last year.

And our next question comes from Gabriel Nóbrega with Citi.

During this quarter, as you know, that your results from financial instruments or government picture is actually decreased quarter-over-quarter, which is quite peculiar as you have a high exposure to these high-yielding assets. So what I actually want to understand from you is, if you're not booking the results from this in your net -- in your interest income. And also what is the flexibility that you have between classifying results from securities in your NII and in the separate line that you have in your P&L? And I'll make the second question afterwards.

Sorry, Gabriel. I mean, in the fourth quarter, first of all, the bank took the decision that we are going to post the income coming from securities in the interest income line or in the interest income segments. Other banks decided to put that below the net interest income. That is the decision of any bank. So Banco Macro is set to put this on the interest income line. We have a very good result in terms of interest income coming from securities, basically, on investment that we have on LELIQs that in the fourth quarter, we decided to take advantage of the increase in the interest rates of the LELIQ that reached 75% at some point, and then it started to go down by increasing, at the same time, the level of time deposits. So that spread was extremely positive for the bank. Well, the numbers are -- is showing very good performance in that level. So that's the answer to your question.

All right. And if you may allow me, just a follow-up here. As we see decreased liquidity of -- sorry, as we see interest rates actually decreasing, what do you expect to do with this excess liquidity that you have? Do you expect to continue on investing into LELIQs?

I mean, as it's happened in the past, it was -- if you remember, Banco Macro forecasted the highest liquidity ratios in the system. And, of course, the idea is to always invest in short-term instruments, with attractive interest rates. At some point, we're at the LEBACs, now we're at the LELIQs, so the idea is that we continue investing the excess liquidity at the LELIQs. So going forward, I would forecast attractive income coming from the securities in the interest income line coming from the LELIQs investment.

All right, that's very clear. Could you also maybe share with us whether your expectations for loan growth, are there maybe any segments that you want to grow more? And I'm here, maybe, I am trying to understand if you actually want to gain share during this year, or do you prefer to be more cautious?

Well, Gabriel, we've got to track very carefully the economy. As I mentioned before, we are seeing the first and second quarter with some sluggish economy numbers, same reaction in the third and fourth quarter. But at the end of 2019, it's going to be a negative real growth in GDP. So it's not going to be a good year for growing very aggressively on lending. We are forecasting that loan growth is going to be similar than the inflation, that the consensus is that we're making for this year, so that is in the area of 30%, 32%. So we are not going to be aggressively lending this year. Again, we want to keep a close eye, as always, to the bottom line. We do not care about market share on this year, so economic recession. So maybe next year, depending on the economic conditions, we could be a bit more aggressive in lending.

(Operator Instructions) And our next question comes from Ernesto Gabilondo with Bank of America.

A couple of questions from my side. My first question is if you can provide any guidance for this year on net interest income growth and OpEx growth. And any color, your expectations for the bottom line growth. Also if you can provide your macro assumptions behind your expectations will be much appreciated. And then my second question is on M&A activity. We have seen in the past your interest to pursue an acquisition, such as Banco Patagonia, given your high capital levels. So given that the Argentine banks industry is one of the most fragmented in the region and considering the current valuations, don't you think it's the best time to pursue an acquisition? Or do you prefer to wait after the elections?

In terms of guidance, you could say that we are expecting loan growth between 30%, 32%. Also, margins, I would say, that are going to be stable to slightly increasing in this year compared to what we saw in 2018 and expect it growing similar to inflation. You get what you get on your model. I'm not going to give exact guidance on every single line of the income statement. So these are the basic numbers that we are working for -- or working with, sorry. So we're expecting an attractive and nominal growth in bottom line according to the numbers I gave you. In terms of your second question, on M&A. First of all, I mean, I agree with you that we have an excess capital and we have been always been waiting for the opportunity to buy another bank. But first of all, you need an official deal on the sale. But for the moment, there's no official deal on the table. Of course, we are always keeping a close eye on any single opportunity that would appear. But for the moment, there's nothing there. I would say that a person that is interested or looking forward to sell might wait until this after the election or might wait to see maybe pricing going up a little more than the current prices. So we are going to make the best use of excess capital, and we are going to go for the opportunity when it's there and at a price that we consider that is the best for Banco Macro.

And any color, and what could be the impact to your profitability once you have the implementation of hyperinflation accounting?

No. As we take it there, we have not finished with the calculations and the auditors working there. So as soon as we get the field, we are going to announce it. But for the moment, there's no final numbers there.

And our next question comes from Carlos Gomez with HSBC.

I would like to know if you are planning to reopen the repurchase program that you have been executing?

Not for the moment. But, of course, we -- I mean, the board is going to track the stock price. And depending on the level they are and the decision of the board, we could be reopening there. But for the moment, it's not under the ordinary schedule.

And there are no further questions at this time. This concludes the question-and-answer session. I'll now turn the conference back over to Mr. Nicolás Torres for final considerations.

Thank you for your interest in Banco Macro. Have a good day. Bye-bye.

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