Banco Macro SA (BMA) 2023 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 2023 Earnings Conference Call. We would like to inform you that the 3Q 23 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores. Also, this event is being recorded and all participants will be in listen-only mode during the company's presentation. (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. Nicolas Torres, Investor Relations. Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Thank you, Gary. Good morning, and welcome to Banco Macro's Third Quarter 2023 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 2023 press release was distributed last Wednesday and is available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying high [prevention] accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina.

For risk of comparison, figures of previous quarters have been restated upon IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2023. I will now briefly comment on the bank's third quarter 2023 financial results. Banco Macro's net income for the quarter was ARS 7.5 billion, 87% lower than in the second quarter of 2023 and 55% lower than the result posted a year ago. The bank's accumulated ROE and ROA of 11.3% and 2.8%, respectively, remained healthy and showed the bank's earnings potential.

Net operating income before general, administered and personnel expenses for the third quarter of 2023 was ARS 356.5 billion, increasing ARS 364 million quarter-on-quarter. On a yearly basis, net operating income before general and personnel expenses increased 23% or ARS 66.7 billion. In the fourth quarter of 2023, provision for loan losses totaled ARS 4.9 billion, 35% or ARS 2.6 billion lower than in the previous quarter. On a yearly basis, provision for loan losses increased 43% or ARS 1.5 billion.

Operating income after general administrative and personnel expenses was ARS 235 billion or 1% or ARS 1.7 billion higher than in the second quarter of 2023 and 31% of ARS 56.1 billion higher than in the third quarter of 2022. In the quarter, net interest income totaled ARS 112.7 billion, 23% or ARS 32.8 billion lower than the result posted in the second quarter of 2023 and 26% or ARS 38.6 billion lower than the result posted 1 year ago. In the third quarter of 2023, interest income totaled ARS 429.1 billion, 4% or ARS 15.1 billion higher than in the second quarter of 2023 and 31% or ARS 102.3 billion higher than the previous year.

Within interest income, interest on loans increased 11% or ARS 18.1 billion quarter-on-quarter due to a 574 basis points increase in the average lending rate, while the average volume of private sector loans was practically unchanged. On a yearly basis, income from interest on loans was 36% or ARS 47.5 billion higher. In the third quarter of 2023, interest on loans represented 42% of total interest income. Net income from government and private securities decreased 7% or ARS 16 billion quarter-on-quarter due to lower income from government acuities. Compared to the third quarter of 2022, net income from government and private securities increased 12% or ARS 21.8 billion.

In the third quarter of 2023, income from repos totaled ARS 37.6 billion, 52% or ARS 12.8 billion higher than the previous quarter and 304% or ARS 28.3 billion higher than the same period of last year. In the third quarter of 2023, FX gains, including investment in duality financing totaled ARS 238.1 billion gain ARS 135.8 billion higher than the previous quarter and ARS 300 million higher than a year ago. This result is mainly due to the 36.4% Argentine pesos depreciation against the U.S. dollar and the bank's loan dollar position, including dollar linked and dual bonds. In the third quarter of 2020, interest expense totaled ARS 316.4 billion, an 18% or ARS 47.9 billion (sic) ARS 48.9 billion increase compared to the second quarter of 2023 and 80% or ARS 140.9 billion higher on a yearly basis.

Within interest expenses, interest on deposits increased 19% 48.7 billion quarter-on-quarter, mainly driven by 1,072 basis points increase in the average interest rate paid on deposits when the average coding of private sector deposits decreased 3%. On a yearly basis, interest on deposits increased 80% or ARS 138.2 billion. In the third quarter of 2023, interest from deposits stand 98% of the bank's financial expenses. In the third quarter of 2023, the bank's net interest margin, including FX, was 58.7% higher than the 38.2% posted in the second quarter of 2023 and higher than the 28.1% posted in the third quarter of 2022.

In the fourth quarter of 2023, net income -- net fee income totaled ARS 35.5 billion, ARS 20 million lower than the second quarter of 2023. And on a yearly basis, net fee income was 5% or ARS 1.6 million higher. In the third quarter of 2023, net income from financial assets and liabilities at fair value to profit or loss totaled ARS 36.4 billion loss, mainly due to the mark-to-market of government securities.

On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss decreased ARS 97.2 billion. In the quarter, other operating income totaled ARS 11.3 billion, increasing 9% or ARS 1 billion compared to the second quarter of 2023. On a yearly basis, other operating income increased 26% or ARS 2.4 billion. In the third quarter of 2023, Banco Macro's personnel and administrative expenses totaled ARS 66.2 billion, 3% or ARS 1.6 billion higher than the previous quarter due to higher employee benefits, which were partially offset by ARS 102 million decrease in administrative expenditures. On a yearly basis, personnel and administrative expenses increased 7% or ARS 4.4 billion.

In the fourth quarter of 2023, the efficiency ratio reached 22.4%, deteriorating from the 21.7% posted in the second quarter of 2023. In the third quarter of 2023, expenses increased 3%, while net interest income, net fee income plus other operating income decreased 1%. In the third quarter of 2023, the result and the net monetary position totaled ARS 215.9 billion loss, considerably higher than the loss posted in the second quarter of 2023 as a consequence of higher inflation observed in the quarter which was 1,114 basis points higher than the second quarter of 2023. Inflation in the third quarter of 2023 was 34.8% compared to 23.8% in the second quarter of 2023.

In the third quarter of 2023, Banco Macro's respective tax rate was 60.5%, and further information is provided in our '22 to our financial statements. In terms of loan growth, the bank's total finance totaled ARS 1.2 trillion, decreasing 4% of ARS 50.8 billion quarter-on-quarter and 5% ARS 57.8 million lower year-on-year. Within commercial loans, overdraft stand out with a 5% or ARS 5.9 billion increase, while documents increased 16% or ARS 30.2 billion. It is important to mention that Banco Macro's market share over private sector loans as of September 2023, reached 7.7%.

On the funding side, total deposits decreased 22% or ARS 556.2 billion quarter-on-quarter totaling ARS 2 trillion and decreased 25% or ARS 670 billion year-on-year. Private sector deposits decreased 23% or ARS 554.8 billion quarter-on-quarter, while private sector deposits decreased ARS 875 million quarter-on-quarter. The decrease in private sector deposits was led by time deposits which decreased 30% or ARS 334.2 billion quarter-on-quarter, while demand deposits decreased 16% or ARS 174.3 billion. Within private sector deposits, peso deposits decreased 24% or ARS 549.7 billion, while U.S. dollar deposits decreased 28% or $351 million.

As of September 2023 Banco Macro transactional accounts represented approximately 46% of total deposits. Banco Macro market share with private sector deposits as of September 2023 totaled 5.3%. In terms of asset quality, Banco Macro's number on total financial ratio reached 1.9%. The coverage ratio, measured as total allowances under Expected Credit Losses over Nonperforming loans under Central Bank rules remained stable at 133.93%. Continued portfolio in nonperforming loans deteriorated 5 basis points up to [1.48% from 1.43%] in the previous quarter.

While Commercial portfolio nonperforming loans improved 4 basis points in the second quarter of 2023, down to 1.14% from 1.18% in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 788.3 billion, which represented a total regular capital ratio of 37.9% and a Tier 1 ratio of 34.8%. The bank aim is to make the best use of this excess capital. The bank's liquidity remained more appropriate. Liquid assets to total deposit ratio reached 9%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remain under control and closely monitored.

We keep on working to improve more (inaudible) standards and will keep a well atomized deposit base. Finally, on November 2, 2023, the Central Bank of Argentina approved the sale of Itau Argentina, now Banco DNA to Banco Macro. Banco Macro has now acquired 100% of the shares and votes of Banco Itau Argentina and its subsidiaries, Itau Asset Management and Itau Valores. The price of net agreement was set at $50 million, which was paid on November 3. An additional amount resulting from a potential adjustment that we be eventually set based on the results obtained by Banco Itau Argentina series between April 1, 2023 and the closing date will be better mined at a fewer days. At this time, we would like to take questions that you may have.

At this time, we're going to open it up for questions and answers. (Operator Instructions) Our first question today is from Ernesto Gabilondo with Bank of America.

Gustavo, Jorge, Nicolas, my first question will be on the potential economic outlook for Argentina, which do you think could be the key execution risks for the new administration? How do you see the possibility to implement structural reforms considering that Congress could be kind of divided as neither the officials or the right parties will have the majority. Also related to this macro political context, we have seen Caputo will be appointed as a new economy minister.

He has been hinting that the capital controls will not be lifted right away. And the dollarization process will be medium-term target. So having said that, how are you seeing the dual currency in the medium term? How should we think about the Argentine peso against the blue ship? And considering the high inflation levels, when should we start to think of lower rates for Argentina? And I will also kind of related to this, we have been seeing that Milei will want to remove the central bank, reduce the leaks exposure. So if that happens, how are you positioning the success liquidity? Do you want it to allocate it into loans but again, considering this context of high levels of interest rates and inflation, how fast do you think will be the credit demand next year?

This is Jorge Scarinci. Thank you for your questions. I will try to summarize my answers. On the outlook for 2024 for Argentina, I think that even though it is a bit early but most of the economic consultants in Argentina are like dividing next year into two. The first half with higher inflation compared to the second half basically because of at least the market is expecting some devaluation on the official effects and some adjustments on tariff prices and also on oil and gas prices.

And that would affect short-term inflation and therefore, the first half of 2024, we should be seeing a high inflation number compared to the second half, again, according to local economies here. In terms of the new administration, honestly, it seems to be like a year ago, they were elected. However, it's only one week since Milei was elected President. For sure, things in Argentina runs in a very high speed. However, we are still 2 weeks before December 10, when he is going to be appointed in. Therefore, in the last week, we have seen or heard many names to be appointed as ministers and they were like laid down.

New names appeared, so I would say that we have to be a little bit careful and patient on the names on the ministries that we help Milei to tackle the next 4 years for Argentina. I think that the biggest challenge for Milei basically is inflation, of course. How he will try to reduce the fiscal density also with the reform that he's planning to send to the Congress. And again, he and the Congress -- he would be the help of (inaudible) because the amount of deputies and senators belonging to Milei are very few. Honestly, it is not an easy task as of today to make what is going to happen in the next 30 or 90 to 120 days of Milei's period. So we have to be able to be patient on that and to see how things evolve. According to Milei's statement, he has a clear picture on the economic monetary and fiscal situation, and he will try to do his best on the measures.

But again, we have to wait because measures will be taken from December 10 onwards and low projects are going to be sent to the Congress after December 10. So we have to wait a little bit more to see official announcements and not only newspapers segments on Milei's proposals. In terms of -- and this is including everything. Also, the dollarization that 2 months ago was an issue. And now apparently, it's not a big issue that could take place in 2 or 3 years after the normalization of the economy same happening with the situation of the central bank that now the last statements are saying that Milei saying that the Central Bank is not going to be closed day number one but he wants to improve the balance of the Central Bank first.

So again, a bit of patience on the evolution of the announcements and the official low projects and measures that will take place after December 10. In terms of Banco Macro, we decided to reduce at some point, the exposure to the Central Bank. So at late September, but more in the fourth quarter, we decided to start the reduction of the leliq's exposure to -- with the Central Bank At. Some point, reducing some institutional deposits, also extending additional loans, short-term loans to AAA companies and also increasing the amount of sovereign bonds in local currency in pesos, basically the dual bonds and dollar-linked bonds. So Ernesto that was a kind of a summary on the bunch of questions that you asked.

No, no very, very interesting, very interesting Jorge. Just a follow-up on this related to your exposure to dual bonds and dollar-linked bonds. So how are you thinking for next year because we have seen that most of the banks have benefited because they have not been lending and they have been using this excess liquidity into these securities.

So thinking that next year could be more challenging? And actually, in this quarter, we saw a lot of volatility. You did very well in terms of FX gains, but we have some losses in the security. So how should we think about this? Or how should we think about the sensitivity which are the variables, and we will have to be looking in the next quarters.

I mean, you are right, in the third quarter, there was some decline in prices basically on the dual bonds and dollar-linked bonds as a consequence of some statements made by Milei at that time. However, what we are seeing in the fourth quarter is a big recovery in the prices of these bonds. And nowadays, the market are continued showing some hedge against the potential devaluation of the official effects.

So the fourth quarter performance on these bonds is looking very good. Honestly, this is a way that we have been mentioning this many times that it's a way of hedging the equity of the bank since banks cannot be long in dollars. So we found this as another way of protecting the equity of the bank. For next year, I think that conditions might change depending on how the market evolves, how inflation expectations are for the second half, if expectations for inflation decline, this could bring -- and of course, in hand-in-hand with the decline of nominal rates, this would bring additional loan demand.

But again, if it happens, is going to happen by the end of 2024. So I think that next year should be challenging. And at some point, banks would have to see where to allocate the excess liquidity. And in the case of Banco Macro, as we have been proving in last years. We always try to allocate excess liquidity in profitable assets with a risk reward equation to be positive for the bank. Always looking at profitability, solvency and liquidity. So that's the idea Ernesto.

Excellent and just last question on how do you see the ROE for this and for next year?

I mean for this year, well, the fourth quarter is not closed yet. We might see something in the area of high teens or maybe close to 20%, depending on the evolution of bond prices. So in that area. For next year, tougher to forecast. Let's assume that we are working with a scenario between 10% to 15% in real terms.

The next question is from Brian Flores with Citibank.

I have two questions. The first one is on the strategic rationale of deposits. We saw contrary maybe to some of your peers, shrinkage in deposits on a quarter-on-quarter basis. So just wanted to understand what is your rationale behind this? That is my first question. And then on the second question, we saw some effects on the effective tax rate. I think you know, we're very clear. But just -- I was wondering if these effects are recurring in nature, we should see something more for the remainder of the year? Any other insights here is very helpful.

Let's start with the second question. In terms of the taxes, I mean, if you look at the 9-month income tax rate, it is 35%. Basically, there was it was slightly below in the first two quarters. Basically, the third quarter, we are catching up in order to reach the 35% income tax statutory rate that we have here in Argentina. In terms of your first quarter, the behavior of deposit is related to -- sorry, related to what I mentioned in to Ernesto's questioning, I mean, we decided at some point to reduce some institutional deposits in the strategy of reducing the allocation of assets and exposure to the Central Bank. Basically because we decided to pay lower interest rate to those depositors that they move to other banks. That is the main reason for that.

Okay. Perfect. And then just to confirm, you didn't have -- clearly you're thinking about ROE for next year between 12% and 15%. Is it correct?

That is correct, again, very preliminary estimates because, of course, next year, it's going to be important year in sense of we are going to have new president, new economic cabinets, new measures -- so as of today, we are working with that scenario that could change at the beginning of 2024, depending on the measures and of course, the outcome that the current might be looking for in terms of inflation, GDP, et cetera.

Next question is from Nicolas Riva with Bank of America.

Nicolas and Jorge for the chance to ask questions. So Jorge, I want to circle back on kind of the prior question -- the initial question that -- well, the Ernesto made multiple questions, but one of the topics that he wanted to discuss was Leliqs exposure. So in this case, we're talking about Banco Macro, but as CFO of one of the largest banks, if you can provide some insights into -- at this point, what do you think is the new administration's plan for the Leliqs. Because it seems to me, right? But you're talking based on what I see here from New York would be that the market solution that the new administration is talking about could be just exchanging the stock of Leliqs for longer-term government bonds. Is that the way you see it as well?

And as you said, the new administration hasn't even taken off, if you're going to do that December 10. It seems like a year since Milei won the election, but it has only been a week and also, if at this point, you think that the restructuring of the Leliqs could include any haircut to the principle. I would assume going forward that there's going to be very little if any new issuance from Leliqs, but I wanted to also get your thoughts in terms of how you think this administration is going to treat that stock of outstanding Leliqs.

Thanks for your question. Honestly, what we've heard for the moment in terms of what the new administration might be doing are only unofficial comments. All of them are unofficial and we have heard a bunch of different measures. In terms of Banco Macro, I can tell you that as I mentioned before, we decided to reduce this exposure to the Central Bank. So we are going to reach December with no exposure to Leliq.

I mean, 0% of Leliq exposure to the Central Bank started in December. So this approach that we started almost 2 months ago. And according to we've seen in the last auctions, there are other private banks that are following the same path that we initiated 2 months ago. So at some point, I would say that the new administration is going to have a much smaller amount of the Leliqs to work on. In my personal view, most of that is going to be in hand of public owned banks. But honestly, I don't know what they are going to offer or what they are going to do with the Leliqs stock that is going to be much, much smaller after December 1, considering what we have seen in the latest auctions.

But honestly, Nicolas it is not easy for me to tell you what they are going to do, honestly, because all the payments have been very unofficial and according to the press, I still don't know if it is [Kaposi's] going to be the economy meter or he's going to go to the Central Bank. So again, a lot of speculation there or so it would not be fair for me to comment on those kind of measures.

Understood Jorge. If I can, one follow-up. So you said by the end of this year, by the end of December, we plan to have 0 Leliqs in our own balance sheet. Would you feel comfortable moving all of that exposure just from a central bank liability to just owning a federal government bond? Or would you prefer to reallocate those Leliqs into a mix of national government bonds, but also some loans to the private sector?

Yes. I commented that, Nicolas. I mean, we started -- this was a process that lasted for 2 months. It was a gradual process of decreasing the amount of Leliqs and on the other hand, reducing the amount of some institutional depositors, last extending new loans to private companies, AAA in the short term, plus at some point, increasing exposure to sovereign bonds in pesos. So it's a combination of all that.

The next question is from Carlos Gomez with HSBC.

So two questions. One is when one looks at your equity, it has barely changed year-on-year. Is the (inaudible) should we expect some investment in the fourth quarter? Or just a (technical difficulty). The second question is regarding the acquisition of Itau, Argentina. Could you give us some indication on how this going to affect your (technical difficulty).

This is the conference operator. Unfortunately, your line seems to be breaking up. Could you try repeating your first question. Go ahead, Mr. Gomez.

Yes, and apologies for the quality of the line. My question was regarding the changes in shareholders' equity which have been almost 0 year-on-year. And I wanted to know exactly why that is, if it is the valuation of the bond. Second, if you could give us an indication about the impact of the acquisition of Banco Itau, Argentina on your capital ratio. Thank you.

In terms of the equity evolution, I mean this is a consequence of the cash dividend that we've been paying reducing the amount of course, of the equity plus the increase on the results in real terms. That basically in the first 9 months of the year are kind of compensating for the cash dividend payment basically. So this is why the equity is not changing that much compared to last year.

In terms of Itau, we are -- I mean, it's not going to have a major impact in our capital base. The excess capital is going to continue to be similar than the one that we published in the third quarter. Basically, remember that for the payment, we issued local debt, one year duration for the payment of Itau. So basically, the capital ratio is not going to be alterated at all.

The next question is a follow-up from Nicolas Riva with Bank of America.

One question about your dollar position outside of the country. One of the things that the CEO of Itau mentioned in your earnings call was that an advantage for the acquiring bank and for them to sell really was the acquiring bank, Banco Macro could pay with dollars outside of the country. From what I remember, when you issued the 2026 bonds for $400 million in 2016, most of those $400 million were kept offshore. If you can remind us what's your dollar position outside of the country? I know that you just mentioned that you did issue a local bond to pay for the $50 million. But if you can remind us your dollar position outside of the country, that would be very helpful.

Give me one second because please, I have to check at the end of September dollar (inaudible). Sorry, Nicolas, for the delay, $350 million as of September 2023 are casting correspondent banks abroad.

Okay. So that's essentially the $400 million you had issued back in 2016 minus the $50 million for -- to acquire Itau essentially?

Yes, approximately.

There are no more questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres 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.