Banco Macro SA (BMA) 2021 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 2021 Earnings Conference Call. We would like to inform you that the press release is available to download at the Investor Relations website of Banco Macro, www.macro.ar/relaciones-inversores. 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. Nicolas Torres, IR.

Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Thank you, Tom. Good morning, and welcome to Banco Macro's Third Quarter 2021 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 it's available at our website. Third quarter 2021 press release was distributed last Wednesday, and it's also 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 the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29, as established by the Central Bank. For ease of comparison figures of previous quarters have been restated applying IAS 29, to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2021.

I will now briefly comment on the bank's third quarter 2021 financial results.

Banco Macro's net income for the quarter was ARS 7.4 billion, 46% higher than in the second quarter of 2021 and similar to the results posted a year ago. The bank's third quarter 2021 accumulated ROE and ROA of 10.1% and 2.2%, respectively, remains healthy and show the bank's earnings potential. Net operating income before general and administrative and personnel expenses for the third quarter of 2021 was ARS 43.2 billion, ARS 87 million higher quarter-on-quarter due to higher net interest income and net fee income and a relatively small loans provisions. On a yearly basis, net operating income decreased 5% or ARS 2.3 billion due to lower net interest income and lower net fee income.

Operating income after general and administrative expenses was ARS 20.5 billion, 4% or ARS 790 million lower than in the second quarter of 2021 and ARS 1.8 billion lower than in the third quarter of

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Okay. Operating income after general and administrative expenses was ARS 20.5 billion, 4% or ARS 790 million lower than the second quarter of 2021 and 8% or ARS 1.8 billion lower than in the third quarter of 2020. In the quarter, net interest income totaled ARS 29.7 billion, 7% or ARS 1.9 billion higher than the result posted in the second quarter of 2021, an 8% or ARS 2.5 billion lower than the result posted one year ago as a result of different regulations adopted by the Central Bank, the asset caps on lending rates and floor on deposit rates.

In the third quarter of 2021, interest income totaled ARS 49.9 billion, 3% or ARS 1.5 billion higher than in the second quarter of 2021, an 11% or ARS 6.2 billion lower than the previous year. Within interest income, interest on loans decreased 1% or ARS 347 million quarter-on-quarter due to a 1% decrease in the average volume of loans and a 9 basis point decrease in the average lending rate. Interest income decreased 8% or ARS 2.2 billion year-on-year.

In the third quarter of 2021, interest on loans represented 50% of total interest income. Net income from government and private securities increased 5% or ARS 1.2 billion quarter-on-quarter due to higher income from government securities, which was partially offset by lower income from private securities. Compared to the third quarter of 2020, net income from government and private securities increased 12% or ARS 3 billion. In the third quarter of 2021, income from Repos totaled ARS 2.2 billion, 48% or ARS 706 million higher than the previous quarter and ARS 1 billion lower than a year ago.

In the third quarter of 2021, FX gains, including investment in the relative financial totaled ARS 592 million gain, ARS 107 million lower than in the second quarter 2021 and 68% or ARS 1.2 billion lower than the previous year due to a lower depreciation rate of the Argentine peso. In the third quarter of 2021, interest expenses totaled ARS 20.1 billion, 2% of ARS 366 million decrease compared to the second quarter of 2021 and 15% or ARS 3.7 billion higher on a yearly basis.

Within interest expenses, interest on deposits decreased 1% or ARS 279 million quarter-on-quarter, mainly driven by a 23 basis point decrease in the average interest rate paid on deposits, while the average volume of private sector deposits remain unchanged. On a yearly basis, interest on deposits increased 14% or ARS 3.2 billion. In the third quarter of 2021, interest on deposits represented 95% of the bank's financial expenses.

In the third quarter of 2021, the bank's net interest margin, including FX, was 19.1% higher than the 18.8% posted in the second quarter of 2021 and a 7.1% registered in the third quarter of 2020. In the third quarter of 2021, net fee income totaled ARS 7.8 billion, 6% or ARS 433 million higher than the second quarter of 2021. On a yearly basis, net fee income decreased 3% or ARS 212 million.

In the third quarter of 2021, net income from financial assets and liabilities at fair value to profit or loss totaled ARS 3.5 billion gain, 40% or ARS 2.3 billion lower than in the previous quarter. This decrease is mostly related to lower income from government and private securities. In the quarter, other operating income totaled ARS 1.8 billion, decreasing 15% or ARS 224 million compared to the second quarter of 2021. On a yearly basis, other operating income decreased 2% or ARS 37 million.

In the third quarter of 2021, Banco Macro's personnel and administrative expenses totaled ARS 13.5 billion, 1% or ARS 96 million higher than the previous quarter, due to higher administrative expenses, which were offset by lower personnel expenses. On a yearly basis, personnel and administrative expenses decreased 8% or ARS 1.1 billion, showing the strict cost control policies adopted by the bank's senior management.

As of the third quarter of 2021, the accumulated efficiency ratio reached 37.6%, deteriorating from the 37% posted in the second quarter of 2021. As of the third quarter of 2021, expenses decreased 6% or ARS 1 billion, while net interest income plus net fee income plus other operating income decreased ARS 5 billion compared to the third quarter of 2020.

In the third quarter of 2021, the results from net monetary position totaled at ARS 12.8 billion loss, 13% or ARS 2 billion lower than the loss posted in the second quarter of 2021. Due to lower inflation observed in the quarter, 157 basis points below the second quarter of 2021. Inflation was down to 9.28% from 10.95% in the second quarter of this year. On a yearly basis, the loss related to the monetary position increased 26% or ARS 2.7 billion. This is the third quarter in which the result from the net monetary position is shown pursuant to Communication 7211 of the Central Bank of Argentina, in which the inflation adjustment on our LELIQs and other government securities holdings is included. Previously, it was shown in net income from financial instruments at fair value through profit or loss.

In the third quarter of 2021, Banco Macro's effective tax rate was 3.7% lower than the 21.8% registered during the second quarter of 2021 and a 39.6% registered a year ago. The low effective tax rate is related to the deferred income tax and more information is provided in Note 19 in our financial statements.

In terms of loan growth, the bank's financing to the private sector totaled ARS 305.9 billion increasing 5% or ARS 13.3 billion quarter-on-quarter and 14% or ARS 48.2 billion lower year-on-year as a consequence of the economic recession that affected Argentina during 2020 and the weak loan demand. Commercial loans increased 10% or ARS 8.4 billion, among which overdrafts and documents stand out with a 14% and 25% increase, respectively. Consumer lending increased 3% or ARS 5 billion. Credit card loans increased 3%, while pledged loans increased 46%.

Within private sector financing, peso financing increased 5% or ARS 14.6 billion, while U.S. dollar financing decreased 9% or $20 million. It is important to mention that Banco Macro's market share over private sector loans as of September 2021 reached 7.3%. On the funding side, total deposits totaled ARS 542.2 billion, and increased 1% or ARS 4.1 billion quarter-on-quarter and decreased 28% or ARS 209.1 billion year-on-year. Private sector deposits increased 1% quarter-on-quarter, while public sector deposits decreased 4% quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 2% or ARS 5 billion quarter-on-quarter, while [demand] deposits increased 1% or ARS 2.4 billion.

Within private sector deposits, peso deposits decreased ARS 238 million, while U.S. dollar deposits increased 1% or $14 million. As of September 2021, Banco Macro's transactional accounts represented approximately 51% of total deposits. Banco Macro's market share over private sector deposits as of September 2021 totaled 5.7%.

In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 1.67%. The coverage ratio measured as total allowances under expected credit losses over nonperforming loans under Central Bank growth totaled 175.9%. Consumer portfolio and nonperforming loans deteriorated 17 basis points to 2.5% (sic) [2.05%] from 1.88% in the previous quarter, while commercial portfolio nonperforming loans improved 55 basis points in the third quarter of 2021, down to 0.67% from 1.1% in the previous quarter.

During 2020, asset quality was positively affected by measures adopted by the Central Bank of Argentina in the current pandemic COVID-19 context, particularly the 60-day grace period that was added to debtor classification before a loan was considered as nonperforming. In March 2021, the Central Bank established a credible transition, which was completed by June 1, 2021, and financial entities must classify their debtors according to the general debtor classification.

In terms of capitalization, Banco Macro accounted an excess capital of ARS 182.7 billion, which represented a total regulatory capital ratio of 37.2% and a Tier 1 ratio of 30.4%. It should be noted that person communication "A" 7312 issued by the Central Bank, the distribution of profits by financial entities is suspended until December 31, 2021. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 90% in the third quarter. Overall, we have accounted for another positive quarter. We continue to show a solid financial position, asset quality remain under control and closely monitored. We keep on working to improve more our efficiency standards, 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 comes from Ernesto Gabilondo from Bank of America.

I have a couple of questions from my side. The first one is on the economic political outlook. After the midterm elections, what do you think are the key challenges ahead? And what are the key dates to follow? And also, if you can share with us how you're seeing interest rates, inflation, FX and loan growth.

And my second question is on your net interest income. We saw an important growth during the quarter, but also we think it benefited from repos with the Central Bank. So how sustainable do you see to keep those gains? And what should be the strategy for NIMs in the next quarters?

Ernesto, this is Jorge Scarinci. Well, the economic outlook, I think that this is pretty similar than what other Argentine banks have been commenting in their conference calls. Basically, we are forecasting some timid real growth in GDP for next year, for 2022. According to the consensus, inflation is going to be in the mid-50s. And for the moment, we are looking forward for stable margins. Of course, this is a dynamic process and changes could happen. But for the moment, those are the elements with the one that we are working with.

In terms of political outlook, well, you already know the results of the recent Congress election. For the moment, I would say that the main issue that the government is considering is an agreement with the IMF that according to the local press, might happen in the next 30 to 60 days. But this is press articles commenting. The government is stating that they are almost reaching an agreement with IMF. But of course, we want to see that in an official announcement and of course, to see the details on that agreement. So meanwhile, we could see some volatility in terms of either FX or stock prices or bond prices, something that we are accustomed to.

In terms of your question related to the interest income and the results that we got from Central Bank repos, that is something that we have been doing basically as a way of allocating excess liquidity. You know that we decided to put the amount of deposits in pesos that are not in loans in pesos, that excess is allocated in LELIQs and repos with the Central Bank while when we look at covering or hedging the equity of the bank, we try to use the amount of dollar that we can. And bonds of the treasury in pesos tied to inflation or dollar link might be. So that is I think the question that you asked.

Yes. And just a last question on the new variant of COVID-19, the Omnicom. What do you think will be the strategy of Banco Macro in terms of your balance sheet? I don't know if you want to maintain a high level of research coverage ratio or maybe to create some additional provisions at some point or on the opposite, you feel comfortable already with the balance sheet you have?

Yes. I think that we -- for the moment, we feel pretty comfortable with the asset quality ratios that we are showing. I think that our one of the best in the system, and we have been in the last I would say, 18 months, very cautious on the amount of provisions and the amount of, yes, write-off levels. So for the moment, I think that this Omnicom version of the COVID-19, it's a bit early to talk about in Argentina. And of course, we are going to follow Central Bank regulations. But again, as I commented, we are going to be the most careful that we can be and in order to protect asset quality levels to continue to be one of the best quality crediting in Argentina.

The next question comes from Juan Recalde with Scotiabank.

I have 2 questions, one on cost of risk and one on the profitability outlook. In terms of cost of risk, this year, the cost of risk has been quite low and close to 0%. So I wanted to know how should we expect this to evolve? And what level of cost of risk can we expect for 2022?

And in terms of profitability, the ROE we saw the ROE improving in the past quarters and reaching around 15% in the third quarter. So given that inflation is expected to be around 50% in 2022 and cost of risk may increase versus the levels that we have seen so far. How should we think about the ROE going forward? Is the 15% level sustainable into 2022? What's the base case that you are working on for next year?

According to the cost of risk, yes, I think that this year is a bit low, but of course, last year was extremely high. So you have to think about of an average in the last 2 years. Going forward for 2022, we are going to be -- we might see what will happen with this new version of the COVID-19 and the impact on the world and of course, in Argentina. But I would say that the cost of risk in 2022 should be higher than 2021. You are correct in your forecast.

In terms of profitability, we think that even though inflation is expected to be in mid-50s, we expect at some point to see some domestic rates to increase a little bit. So I think that could be good news for the bank and for the margin and in order to try to maintain the area of 15% ROE in 2022.

The next question comes from Paula La Greca with TPCG.

I have 2 questions. The first one is if you could give us some color on model up performance in terms of users compared to Mercado Pago?

And my second question is, if you have any plans to reduce the number of branches?

Let's start with your second question. No, for the moment, we are okay with the number of branches of carries -- of course, sorry, we always try to make the branches as much profitable as we can and to optimize the level of our branch network. For the moment, we are not planning a massive opening of branches. And so I think that the number of branches is going to range the current number. There could be little changes there ups and downs.

On your first question, I mean we are working on and we are improving a lot, and I think that this the COVID-19 period accelerated the use of digital elements for banking transaction. Model is improving well above our expectations in the last 18 months, and we think that this trend will continue. And we are going to put all the airports and the necessary investments in order to keep on improving that because that is a very cost-efficient way of making bank transaction. And I think that people -- as I mentioned before, accelerated their knowledge on these type of elements because of the COVID-19 and the consequences there. So this is something that the process has improve a lot. And we think that this is going to continue in the next couple of years. That's why we are very positive on this.

(Operator Instructions) The next question comes from Yuri Fernandes with JPMorgan.

I have a first one regarding Prisma. If you can comment what is missing here. We've seen the news articles like some comments on the multiples, I guess, part of the contract. But there are discussions about FX. So if you can provide some color what should be the value that we should expect for the 4.5% stake that Macro has on Prisma?

I have a follow-up regarding cost of risk. Also, you mentioned are that cost of risk should be higher, right? But how much higher because the 0.3% cost of risk, we are seeing, as I said, is too low and historical average was closer to 2%, right, it's 1.6%, 1.7%. So for 2022, should we see cost of risk back to this per collaterals? Or is there still a transition year that it will move up because again, 0.3% cost of risk is very low for perhaps the bank, but still below the historical average, like how should we see -- like how much higher high lease here for you?

And finally, I have a third and last question regarding transfer interest 3.0 (inaudible). If you can comment your views on that, like do you believe this can be big like this stantaneous transfers in Argentina that can be a risk for debit cards or not really like what is your take on this new feature?

In terms of your Prisma question, honestly, that is nonpublic information. So unfortunately, we cannot give details on that. So I think that you understand us in relation to that.

In terms of your second question, the cost of risk, I would say that depending on -- again, depending on what will happen with COVID-19 impact, we are working with a scenario of between 1.5% and 2% cost of risk for 2022. But again, we will have to see what happens with -- what happen with the COVID-19.

And your third question, in terms of 3.0 (inaudible), that is something that is just starting here in Argentina with QR code and is also improving a lot. And with model, you can do that. But this is one of the newest I would say, elements of the digital facility that we have here that is just starting. But again, because of the pandemic consequences is increasing a lot. But again, it's under very early stages here.

There are no further questions at this time. This concludes the question-and-answer session. I will now turn the call over to Mr. Nicolas 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 is now concluded. Thank you for attending today's presentation. You may now disconnect.